Local retention of non-domestic rates

Local Government Finance Bill – in a Public Bill Committee at 2:00 pm on 7 February 2017.

Alert me about debates like this

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 2:00, 7 February 2017

I beg to move amendment 31, in schedule 1, page 33, line 31, at end insert—

“(3B) After sub-paragraph (2) insert—

(2A) As soon as is reasonably practicable after calculating the payments to be made or received under sub-paragraph (2), the Secretary of State must assess whether each local authority has sufficient resources to provide all statutory services in its area for the relevant year.

(2B) The assessment under subsection (2A) must be published in a report and the Secretary of State must lay it before Parliament.”

This amendment would require the Secretary of State to assess whether each local authority has sufficient resources to provide all statutory services in its area.

It is genuinely lovely to have you in the Chair, Sir David. This is no shame on Mr Gapes, but his presence in the Chair sadly did not inspire a series of helpful statements from the Minister. You missed three speeches from Conservative Members, including an excellent speech from the hon. Member for North Swindon, who gave away far more detail about the ideology behind the Bill than the Minister was willing to do. There were some very interesting interventions by the hon. Member for Thirsk and Malton, who will be very interested in hearing the case for amendment 31, which I am about to set out.

Order. It is very kind for the hon. Gentleman to give me a resume of what happened this morning, but it is not necessary, so I ask him please to speak to the amendment.

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

I am always grateful for your guidance, Sir David, but you intervened on me just as I had finished giving a very helpful resume of this morning’s debate.

I am delighted to have the opportunity to speak to amendment 31, which is in my name and that of my hon. Friend the Member for Oldham West and Royton. It would require the Secretary of State to assess whether each local authority has sufficient resources to provide all statutory services in its area. The explanatory notes state:

“These reforms to the local government finance system will move local authorities away from dependency on central government grant and towards greater self-sufficiency.”

Which side of the divide one sits depends on the extent to which one believes that statement.

A local authority may be able to reduce its business rates multiplier to encourage economic growth, or it may be incentivised to permit new business development, but there is no direct relationship between that and the number of people who need social care or who have been made homeless. A unitary authority at least has responsibility for both local taxation collection and service delivery, but the situation is more complex in areas with two tiers of local government, where one authority collects taxes and another provides some statutory services. I am sure we will return to the mechanism for enabling a billing authority and a presenting authority to consult as we debate the Bill. I want to concentrate on funding for statutory services and whether there is a full and proper assessment of the case for statutory provision at a local level.

We will reach 100% business rates retention in, I understand, April 2019, the revenue support grant and other grants will be phased out and additional responsibilities will be passed down to local government. The Minister tells us that the change will be fiscally neutral. What Ministers have not yet told us is what they envisage happening if local authority revenues diverge significantly from the funding needed to provide statutory services. As the hon. Member for Thirsk and Malton pointed out a number of times—or it might have been the hon. Member for coastal erosion or Waveney—the Government are conducting a fair funding review, but will set the needs baseline only at the point of transition from the current business rates system to the new 100% retention system. One might ask what happens if the overall funding in the system fails to keep pace with the cost of providing services.

It is worth paying close attention to the Government’s record on that point. The cross-party Local Government Association has calculated that local government faces a £5.8 billion funding gap by 2020. Local authorities have statutory obligations to provide several services. As we have said several times, we support the principle of 100% business rates retention, but we want an honest assessment of the implications for councils’ finances and their ability to continue to deliver the services they are obliged to provide.

I stress again that there is no inherent or causal link between a council’s ability to encourage local growth and boost its business rates revenue, and local demand for key services. The hon. Member for North Swindon said that the economic incentives in the Bill would cause a huge surge in business rates income. People who are perhaps more expert than him—there are clearly not that many—worry about whether his optimism is as justified as he might hope.

We heard before lunch that Ministers in Whitehall will retain huge power over the resources available to local authorities but are determined to face less scrutiny in Parliament. There are some 56 new powers in the Bill for the Secretary of State, the Treasury or some other bit of Whitehall to interfere with local government finances. Amendment 31 would place just one additional duty on the Secretary of State—a duty to assess whether each local authority has sufficient resources to provide all statutory services. You are a diligent Member of the House, Sir David, so you will be well aware of the crisis in adult social care, which is perhaps the most visible example of the funding pressures facing local authorities and, in terms of statutory services, the most pressing justification for amendment 31.

Just this weekend, Councillor David Coppinger, who is the cabinet member for adult services and health in the Prime Minister’s local authority, the Royal Borough of Windsor and Maidenhead, and Councillor Simon Dudley, the leader of that council, added their voices to the clamour for a solution to the adult social care crisis. Perhaps they were encouraged to speak out by my amendment 31. Councillor Dudley told The Observer:

“The burden is increasing disproportionately over time against a backdrop of more required efficiencies from local authorities. You see that with situations like Surrey”.

I remind hon. Members that Surrey wants to put up its council tax by 15% purely to pay for social care. [Hon. Members: “No it doesn’t!”] Well, it certainly did last week. Councillor Dudley went on to say that Surrey

“simply can’t achieve that, and there will be others. I have absolutely no doubts at all. Other local authorities will find themselves in the same situation as Surrey over the coming years.”

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

The situation as of today is that Surrey will not have a referendum on a 15% council tax increase. I understand that that is not because it assesses the need as any less but for other reasons. However, my hon. Friend’s fundamental point about social care funding is absolutely critical and needs addressing.

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

I am grateful to my hon. Friend for making that clear. It will be interesting to see what pressure was applied to the leader of Surrey County Council. He obviously has a close relationship with the Chancellor of the Exchequer, who is one of his Members of Parliament, and it will be interesting to see whether that had anything to do with that volte-face. My hon. Friend may not know this, but Surrey has the great advantage of having one Labour councillor. There is only one at the moment, but I am sure that will change after the elections. His name is Robert Evans. He is a former Member of the European Parliament and was leading the campaign, on behalf of those in Surrey who were only just about managing their finances, against the 15% increase in council tax. I am sure he will be feeling very proud today of the success that he has had in persuading Surrey County Council not to increase council tax and hit those in Surrey who are not so well off.

I will return to Councillor Coppinger of the Royal Borough of Windsor and Maidenhead. He believes that the current funding model for social care is sustainable for only two more years. It is worth remembering that the Prime Minister’s local social care authority is one of the few that has been able to increase spending on social care since 2010 by 5.7% in real terms.

To take another example, Liverpool has been able to increase spending by 6.7% in real terms over the same period. However, the situation there is even worse. Liverpool’s adult social care director, Samih Kalakeche, has tendered his resignation. He said that, as things stand, councils such as his will probably soon be unable to meet their statutory requirements:

“Frankly I can’t see social services surviving after two years. That’s the absolute maximum. If we don’t do something within the next six months, I believe social services will not exist by 2018-19. This isn’t scaremongering, this isn’t me asking you to feel sad for me—whoever is making decisions out there has looked at social care as the Cinderella of the service, which means more and more people are staying at home with high needs because of the removal of the prevention agenda. People are struggling, people are suffering, and we’re really only seeing the tip of the iceberg”.

The Minister may not be sympathetic to the former director of adult social care in Liverpool, but he might be more sympathetic when he considers that the Local Government Association shares similar concerns. He will probably be aware of what Councillor Izzy Seccombe said last month. She is Conservative leader of Warwickshire County Council—I am sure she is well known to the Minister. She is also chair of the LGA community wellbeing board. She said that

“the intentions and the spirit of the 2014 Care Act that aims to help people to live well and independently are in grave danger of falling apart and failing, unless new funding is announced by government for adult social care”.

The leader of the Minister’s own council has set out how grave is the funding for one key statutory service, which is all the more reason to tempt you, Sir David, to agree with the case for amendment 31, albeit you cannot do so given your position.

As far back as 2015, local authority representatives told the King’s Fund that they were struggling to meet their obligations under the Care Act 2014. Just 8% of council directors of adult social care say they are confident they can fulfil their duties under the Act in 2017-18, which is a pretty difficult situation. The LGA is not the sort to scaremonger, but it has been calling for urgent measures to plug a funding gap in social care. It says that £1.3 billion is needed, with the funding gap expected to rise to £2.6 billion by 2020 if nothing changes at all.

A new story seems to emerge every day to illustrate the crisis in social care and to underline the need for the assessment that is at the heart of amendment 31. Yesterday, we learned of the case of Iris Sibley, who was stuck in a hospital ward for six months as a suitable nursing home place could not be found. Mrs Sibley’s son has described how her mental and physical health deteriorated as she was stuck on the ward, well enough to be discharged but with nowhere suitable to go.

One wonders what it would take for Ministers to act. Perhaps amendment 31 might prompt more action, more quickly from Ministers.

You did not have the privilege of being here this morning, Sir David, when I dwelt on the terrible situation that 20 local authorities face with the huge number of delayed transfers of care. Of those 20 worst councils—I use that language advisedly—14 are Conservative-run. Instead of attacking local authorities, as has been happening too much of late, I hope that will prompt the Minister to recognise the seriousness of the crisis. Amendment 31 is needed for the future, but a solution is needed now.

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

We have all been trying to help the hon. Member for Torbay improve his performances so that he is allowed to move from the back of the Back Benches to be a little closer to the front.

Photo of Kevin Foster Kevin Foster Conservative, Torbay

The shadow Minister is his usual generous self, and I thank him for giving way. I can only say that I can guess who my hon. Friend Philip Davies looks to for inspiration in terms of brevity in making speeches on Fridays. The hon. Gentleman has been referring to social care. Torbay has one of the lowest levels of delayed discharge, despite its demographics. Does he agree that setting up a good quality integrated care organisation is the actual solution, rather than his amendment?

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

To my great surprise, I am almost in agreement with the hon. Member for Torbay—there has clearly been a huge improvement as a result of our collective mentoring of him—but I add one reservation to my encouragement. What he suggests makes some sense going forward, but amendment 31 would be a useful addition that would give us the opportunity to understand whether Ministers have properly grasped the social care funding situation for each local authority, whether that is joint or not joint with others.

In making the case for amendment 31, let us move into an area that is particularly topical in light of the housing White Paper: homelessness services. Clearly, those are key statutory services that local authorities offer. Local authorities have already faced a substantial number of legal challenges on their statutory duties to support the most vulnerable people who are at risk of homelessness. In September last year, 74,630 households were in temporary accommodation, including those in bed and breakfasts. That was the 21st consecutive quarter in which the number of homeless households in temporary accommodation increased. If we factor in the 40% increase over the past four years in the cost of providing temporary accommodation, the LGA—not a body to sound the alarm unnecessarily—estimates that the funding gap for homelessness services will be £192 million by 2020.

I was not able, because I was preparing for this debate, to be in the Chamber to hear the Secretary of State speak, but just from looking briefly at the social media reaction, I did not get the sense that he announced an additional £192 million for homelessness services by 2020. That is a further reason to encourage action after the new system comes in by accepting amendment 31.

Sunderland City Council has already announced that because of the very difficult financial situation it is in, it may have to cut its entire housing support budget, which is used to pay for vital services, such as hostel beds, refuges and supported housing. Services for those who are most at risk of homelessness, including ex-offenders, people with mental health conditions and those with learning difficulties, are also being cut. When we bear in mind that the life expectancy of those sleeping rough is just 47, according to charities in Birmingham, one fears that vulnerable people will die as a direct result of the proposed cuts to housing support services in Birmingham of some £10 million over the next two years. That is an indication of the financial crisis affecting another local authority.

The new duties to be introduced under the Homelessness Reduction Bill, which the Minister prayed in aid last week, are welcomed, but many of us remain sceptical that councils are being adequately funded to fulfil them. On Second Reading, as I recollect from glancing at the debate, quite a few of the interventions raised directly with the Minister concern about the availability of funding. Were amendment 31 on the statute book, Ministers would have less chance of inadvertently not understanding or not recognising financial needs in that area.

There is great concern about the insufficiency of the £48 million of funding that the Minister announced to expand necessary homelessness provision for single men and women. The Association of Housing Advice Services, which is a non-profit organisation, estimates that London’s 32 boroughs alone will face a combined bill of £161 million to implement the new duties.

The full scale of the housing crisis is clearly beyond the scope of the amendment, but I am sure that in our advice surgeries we have all come across incidences of families struggling to find affordable accommodation near their workplaces or children’s schools. It is clear that the funding for the vital role that local authorities play in protecting the most vulnerable and in finding that most basic need, a home, is under severe pressure.

Another key statutory service that should surely be recognised by inclusion of amendment 31 in the Bill is children’s services. Looking after children is one of the most important statutory duties of councils, with a total of £11.1 billion a year spent on un-ring-fenced funding on children’s social care and education services. Again there has been an increase—60% since 2008—in the number of children requiring children protection plans. That is at a time when, from 2010 in the previous Parliament, councils lost 40% of their funding from central Government. The LGA estimated a £1.9 billion funding gap for those vital services by 2020.

For many councils, the pressure on children’s services is even more acute than for adult social care. Three hundred and seventy-seven Sure Start centres have closed since 2010, with only eight opening in that time. That is the result, I suggest, of a spending cut on the centres of 47% in real terms. Sure Start centres have been crucial in supporting children from disadvantaged backgrounds during the vital early years before they reach school age, but again service cuts are diminishing such children’s prospects. Were amendment 31 on the statute book, Ministers might feel a little more reluctant to push such savage cuts through.

In the context of education and education services, will the Minister explain why the Government still intend to go through with the planned cut to the education services grant? It is entirely appropriate to ask that question in the context of amendment 31—let me explain why. The Education Secretary was correct in deciding not to proceed with the forced academisation programme of her predecessor. Under the proposed education-for-all Bill that would have delivered that programme, it would seem sensible for councils to lose their funding for their school improvement responsibilities—given that all schools would become academies. Forced academisation having been scrapped, however, we are left with a situation in which councils keep their school improvement responsibilities, although the funding is still being cut.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

May I caution my hon. Friend not to be too hard on the Minister because it is Ministers from the Department for Education who demonstrate time after time on the Floor of the House that they do not understand the difference between early years education and childcare? They constantly elide the two. It is not this Department that makes that mistake, although it may, but the Department for Education and its ignorance is shocking.

Order. Before the hon. Member for Harrow West responds to that intervention, may I say that I have been listening carefully? It is certainly within Erskine May, but if we continue to go through the statutory regulations in minute detail we will have an all-night sitting. Will the hon. Gentleman draw his remarks more closely to amendment 31 before we start going on about early years learning?

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

I am grateful for your guidance, Sir David. I will leap forward and give one specific, tangible example of the concern that motivated me to table amendment 31. In 2015, Lancashire County Council commissioned a report by PricewaterhouseCoopers to look at the level of resources it needs to provide statutory services going forward. That report makes sobering reading. It forecast that even if the council achieved everything in its saving plans, it would have an in-year deficit of £148 million in 2020-21 and a cumulative deficit of £398 million.

The report identified several areas in which planned savings were at risk of slipping and not delivering the full range of savings, meaning that the forecast budget gap would be even greater. That example of Lancashire County Council and the independent work by PricewaterhouseCoopers on whether it could continue to fund its statutory services in the future surely cuts to the very heart of the case for amendments 30 and 31.

Given the scale of spending cuts that councils have experienced and the sheer number of councils in all parts of the country and of all colours that have outlined their views, councils are under huge pressure. I gently suggest that Ministers cannot continue to press ahead without a significant change in direction and recognition that a central part of the new 100% business rates retention scheme should surely involve putting local councils on a sustainable financial footing. That is the context in which I make the case for amendments 30 and 31.

If Ministers are not convinced by the example of Lancashire County Council, let me give the example of Nottingham City Council. Councillor Jon Collins gave evidence to the Committee and made clear the scale of the cost pressures affecting the council—£11.2 million of cost pressures, wages demography, additional inflation and charges from providers. He talked about the extra funding and pressure on his budget and raised a comparison with a nearby local authority—Rutland. He noted that the spending challenges facing his authority in Nottingham were substantially less than those facing nearby Rutland.

Clearly, amendment 31 might help to persuade Ministers to iron out such difficulties if there was a proper assessment of need. That is the spirit in which I tabled amendment 31. I hope the Minister might now be willing to be more careful with the future of local authority finances. Amendment 31 would be a sensible additional safeguard.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

It is a pleasure to serve under your chairmanship, Sir David. I thank Opposition Members for the amendment, which provides an opportunity to set out the Government’s position on the future sustainability of local government. Before turning to the amendment, I would like to take the opportunity to clarify that medium-term fiscal policy decisions in the United Kingdom are managed, as the hon. Member for Harrow West knows, through spending reviews. The spending review in 2015, for example, set local government expenditure limits to 2019-20. The Government will continue to assess the funding of local government after the introduction of 100% retained business rates through spending reviews.

Where a spending review identifies that increased funding for service delivery is required in excess of expected business rates receipts, additional resource would be needed to fund that service. As we discussed at great length in last Thursday’s sitting, the Bill does not remove the Government’s power to use section 31 grants to provide additional funding to local authorities if needed. A good example of that has been identified recently. The hon. Gentleman mentioned the Homelessness Reduction Bill, which has been welcomed by Members on both sides of the House, including the hon. Gentleman’s Front-Bench colleagues. The Government have looked very carefully at the additional responsibilities that local authorities will have to deal with. We have come up with a significant funding package of £61 million, which will be subject to a form of distribution, taking into account areas that have higher need for homelessness services than others. That funding will be distributed by way of section 31 grants.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 2:30, 7 February 2017

Given the concern about how tariffs and top-ups and distribution of resources will take place between local authorities, will the Minister give a bit more clarity on the criteria for the distribution of that homelessness funding? Will it be guided by the index of multiple deprivation? How will Ministers be guided in terms of the distribution of that finance?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

The hon. Gentleman raises a good question. As was made clear in Committee and, if I recall correctly, on Report of the Homelessness Reduction Bill, a clear commitment has been given by the Government to work with the local government sector, particularly the LGA, on how that funding will be distributed to reflect need. As the hon. Gentleman will know, the spending review process and a number of different processes will follow from the Bill. The Government also take the position that they will work with local authorities and its representative bodies to come to conclusions, particularly on the quantum of funding required and how it is distributed.

Amendment 31 would require the Secretary of State to assess whether each local authority has sufficient resources to provide statutory services in its area. Our concern with the amendment is that it replicates what is rightfully a matter for the Government to consider through a spending review. Furthermore—the hon. Gentleman alluded to this point—the fair funding review will consider the suitable distribution for funding across local government.

I hope I have reassured hon. Members that the Government will continue to consider the level of funding for local government. I therefore ask the hon. Gentleman to withdraw the amendment.

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

I listened carefully to the Minister and take his point about the fair funding review. I would gently suggest to him that that is discretionary, although it is a pivotal element to this particular measure and is one of the parts that will come sometime in the long-distant future to inform us how 100% business rates devolution will work in practice. What we do not know is whether there will be a fair funding review in future if there were to be another Conservative Government. We do not know whether there would be a spending review in future —they are entirely at the discretion of the Government.

Amendment 31 would lock into law the requirement to produce that assessment. In the context of such a radical transformation, to use the Minister’s words, of local government finance, the additional duty on the Secretary of State seems like a sensible precaution to put in place. Much as I would like to accept the assurances from the Minister, I fear that I cannot, and I intend to put amendment 31 to the vote.

Question put, That the amendment be made.

The Committee divided:

Ayes 6, Noes 9.

Division number 2 Seasonal Working — Local retention of non-domestic rates

Aye: 6 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Amendment proposed: 26, in schedule 1, page 34, line 42, leave out sub-paragraph (4) and insert—

‘(4) In sub-paragraph (4), at end insert “, which must be approved by a resolution of the House of Commons.” .—(Mr Thomas.)

This amendment would retain the requirement that an amending statement be laid before the House of Commons and additionally would require that the report be approved by a resolution of the House.

The Committee divided:

Ayes 6, Noes 9.

Division number 3 Seasonal Working — Local retention of non-domestic rates

Aye: 6 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

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

I beg to move amendment 27, in schedule 1, page 35, line 32, leave out sub-paragraph (1).

This amendment would retain levy accounts.

It is a pleasure to serve under your chairmanship, Sir David. You have not had the pleasure of attended many of the debates we havwe had and I will refrain from repeating them, although they were fascinating in many ways. They were a source of great training and education from my hon. Friend the shadow Minister. I would hope that, on reflection, the Minister picks up some of the points about attention to detail, really understanding the brief and assessing the impact of decisions made in Parliament.

I have the honour of explaining some of the more technocratic parts of this Bill. If you are interested, Sir David, in what a levy account is, and that mysterious way of working and why it is there, this is the amendment for you. Amendment 27, which is in my name and that of my hon. Friend the shadow Minister, is in many ways technical, but it is also very important—I will explain why in my short summary of support for it. I say at the outset that it is a probing amendment because I want the Minister to pay attention to my contribution and to address the issues I raise.

The last levy account, covering 2015-16, was presented to Parliament under the requirements of the Local Government Finance Act 1988. If the Minister wants to look it up, it is dealt with in paragraph 19 of schedule 7B. The business rates retention scheme introduced on 1 April 2013 allowed local authorities to retain 50% of rates collected in their area. Cash flows in respect of that scheme are reported in two White Paper accounts: the main non-domestic rating account and the levy account. The amendment refers to the latter.

In simple terms, the levy account provides transparency of cash flows between local authorities and the Government in respect of the 2013 scheme. A reasonable response would be: “We’re moving away from the 2013 scheme, which provided 50% of rate retention, to 100% rate retention,” but, critically, the levy is basically just a mechanism for bringing money in from areas that pay a tariff, and sending it back out to areas that have depressed business rate bases—it effectively provides the accounting mechanism to allow those payments to take place. If we had 100% retention but also intended to create a safety net to support local authorities that have experienced unforeseen impacts on their business rates bases, the levy account could perform that function, regardless of how much was retained and redistributed locally, which is important if we consider that 326 billing authorities in the country may well have a claim on the levy account. Some will use it only temporarily. For instance, there is a facility for mid-year payments to be made from the levy account and, when the accounts are made up at the end of the financial year, if a local authority has been overpaid, the amount will be recouped and paid back into the levy account.

The levy account has an interesting history, some of which is contentious, if I am honest, to local government friends. Several years ago, a top-slice was taken from the revenue support grant. That meant that less money was distributed to councils in the first place, but at least it provided a safety net. For instance, last year £50 million of additional money from the RSG was sent into the levy account to support councils that had had an unforeseen depression in their tax base.

That raises an important question about where the Bill is going. We have talked about support in principle for rate retention, and for a system of tariffs and top-ups whereby areas that could not retain the money they needed locally would have sufficient money to pay for public services in their area. We have talked about what formula could be used, rural areas and urban deprivation—we have talked about a range of issues. In some ways, that is not for this amendment, which is solely about the mechanism by which safety net payments are provided.

It is fair to say that, during our debates on the Bill, no information has been provided about what mechanism will replace the levy account, which raises a question: if there is a desire for some kind of safety net to support councils that fall on difficult times, how will it be provided if the mechanism is deleted?

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

My hon. Friend will know that a consultation document was published in July last year and that there have been more than 400 responses. Does he share my view that it would be helpful if the Minister gave a summary of what those responses said about the levy?

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

This has been a theme throughout the Committee’s sittings. We are having a debate in almost complete isolation, without knowing where the Government intend to go on the fair funding formula—as has been discussed, that is absolutely critical and underpins the Bill—and without understanding the sector’s views. We debate issues and make laws to which other people have to adhere, and they have real-life consequences. The local authorities that have to live with the consequences, and that know the impact on the frontline, have responded to that consultation, but we are discussing the Bill without sight of their responses. I am not sure whether that is due to a Trump-esque view—if something does not support someone’s view of the world, it is dismissed as fake polling data or fake news. Is it possible that those consultation returns are being screened for “fake” consultation responses? How long does it take to compile the information submitted by the sector and send it out in a report? Even the raw data—a copy and paste of what had been provided—rather than a summary would at least mean we could scrutinise it and undertake the questioning and answering that should take place.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 2:45, 7 February 2017

I thank my hon. Friend for his support for my request for at least a summary of the responses on the levy at the end of this debate, in the Minister’s response. Does my hon. Friend not share my view that it would be particularly interesting to hear what contribution the Prime Minister’s authority made, not least as it is one of the local authorities that stands to benefit, in business rate terms, when a third runway is built at Heathrow?

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

I absolutely agree with that point. It has been made a number of times, but the Minister has consistently failed to address it. The Minister may well have been passed the answer by one of his advisers; perhaps he can share that knowledge with us in his response—that would be very helpful.

The important thing about the levy account is that it is not just about the mechanism; it is also about how much money is put in the pot that can be used to support councils with a depressed local business rate base. Critically, that relies on a vote of Parliament. We talked about parliamentary scrutiny of the annual financial settlement that will support local government, and about the referendum limits and how that would be subject to a parliamentary vote. The Government seem determined to make sure that Parliament does not have a role in how local government is funded. This is another example of Back Benchers not having a say on how much money is provided for any kind of safety net.

I am not sure what confidence we are meant to have in the system, when we do not know what local government has said as we are debating and scrutinising the Bill, what the method of redistribution will be, or how much will be provided by way of a safety net—or even whether that mechanism will be inside or outside Government, because in the consultation, there has been a nod to a semi-independent body potentially being established. However, we are of course framing our own view and interpreting the Minister’s limited responses in these debates, rather than seeing that set down on paper.

The scale of the payments from the levy account are quite important. These are not small payments—well, sometimes they are, but the scale of the call on that budget is significant. For 2015-16, the Secretary of State approved payments of £112 million to support local council services. Imagine what £112 million could pay for—how many day care and youth centres that would fund, and how many older people could be looked after in their own home with that. If that money was not there, what would be the human cost of councils being told to sink or swim without having that safety net in place? Some clarity on that from the Minister would be greatly appreciated.

In all this, we are trying to understand what the end will look like. We are aware of what is being taken away, and of how the Secretary of State, and the Minister in this Committee, are reducing the role of Parliament and parliamentary scrutiny; we are less clear on what the end will be. All of us in politics accept that to make good legislation and good decisions, we have to make difficult decisions at times, but we should never go forward with a bad decision based on a lack of information and half-reports. Please say what mechanism will be there to support the levy account. We can then hopefully have a meaningful debate on what the safety net and mechanism will be, and can test whether it is fit for purpose.

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

I rise in support of amendment 27. It is worth touching on a couple of the ways in which the levy rate works. Tariff authorities may be subject to a further levy on growth in business rates income. Each such authority was set a levy rate of between 0% and 50% at the outset of the 50% business rates retention scheme in 2013-14. An authority with a 0% levy rate will keep all its growth in revenue. An authority with a positive rate—over 0%—must pay that percentage of its growth in revenue to the Government. The purpose of the levy is to ensure that authorities with very high business rates tax bases relative to their assessed needs do not benefit disproportionately from the system. As my hon. Friend so eloquently set out, the Bill will remove the Secretary of State’s power to set such a levy. Clearly, our amendment would retain that power.

I have already mentioned the example of Maidenhead’s council, the Royal Borough of Windsor and Maidenhead, which has a 50% rate—the highest rate that it can have. Presumably, this is because the council already benefits from its proximity to Heathrow, and from all the businesses that want to be close to Heathrow to export their goods to markets around the world. We commend Maidenhead on its good fortune, but surely as it benefits from a major piece of infrastructure—Britain’s most crucial hub airport—it has not had to do huge amounts to encourage that growth in business rates income, although I am sure that the council’s leader would point to one or two things it has done to encourage business. However, even Maidenhead would struggle to claim that it has not benefited from being so close to a major airport. I cannot see anyone in this room who is an opponent to a third runway at Heathrow.

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

I apologise to my hon. Friend. As ever, he helpfully corrects me, but the majority of Committee members support a third runway. With a third runway, Maidenhead’s council will presumably benefit from being even more attractive to businesses that want to get their goods out to export markets. It will have done nothing to put in place new conditions for economic growth; it will simply have benefited from a major strategic decision taken by this great House. The irony is that Maidenhead opposes a third runway at Heathrow.

Order. I am listening very carefully to the hon. Gentleman, but it is not appropriate for him to continue on the point about Heathrow airport. Will he return precisely to amendment 27, which we are debating?

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

Thank you, Sir David. Hillingdon has a 50% levy rate at the moment. The worry is that in future, it may not have to pay quite so much back into the national pool for redistribution to other local authorities, such as North Yorkshire. We have heard regular and understandable pleas for additional finance from the hon. Member for Thirsk and Malton. One would have thought that he would want Maidenhead’s council to benefit from a third runway, so that some of its growth in business rates revenue could be redistributed to North Yorkshire.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

It is a pleasure to serve under your chairmanship, Sir David. The hon. Gentleman makes a very good point, but some of that revenue will presumably be redistributed at reset periods, so North Yorkshire would benefit from increased business rates there. The principle behind the measure, and the scrapping of the levy, is to increase the incentive for local authorities to grow their business rates; levies decrease that incentive. Does he welcome the fact that there will be a greater economic imperative without the levies in the system?

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

At the heart of the debate is the question of whether there will be quite the economic imperative that the hon. Gentleman and the hon. Member for North Swindon suggest. I hope that there will be such an imperative, but the evidence from the witnesses was not hugely encouraging on that point, as I set out when I referred to the contribution of the chair of the Federation of Small Businesses.

The hon. Member for Thirsk and Malton made a point about resets, but we do not know how often they will take place. I gently suggest to him that it might be better to think about retaining the levy arrangement, so that his authority and mine can benefit from some of that income a little more quickly. Perhaps he does not know that North Yorkshire has a 0% levy, so it is one of the authorities that does not have to contribute to London authorities such as mine, Wolverhampton or anywhere else. I am sure he is pleased to hear that.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Is my hon. Friend aware that under the system that the amendment seeks to retain but that the Bill will remove, over the past four years there have been 52 winners—if I may put it that way—and 119 losers, according to the Institute for Fiscal Studies? Surprise, surprise: most of the winners are district councils, and most of the losers are larger councils, including many metropolitan borough councils and unitary authorities.

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

My hon. Friend is right. As he knows, I have expressed concern about the distribution between tiers of authorities and how redistribution mechanisms would work in practice without a levy, but we are none the wiser about redistribution in practice, because the Minister has not been able to tell us about it. Perhaps you, Sir David, can use your influence with him to elicit the summary that has been promised for some time in the future, we know not exactly when. We are told it will be soon-ish, but how long that is, we do not yet know. Perhaps some of the 400-plus responses to the consultation document that the Department produced last year will give us some sense of how the levy will work.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The hon. Gentleman made a remark about North Yorkshire not contributing to his local authority, but that is quite right, because his local authority already has greater spending power, so why should it? He also made mention of my hon. Friend the Member for North Swindon and me; we are in concert on economic opportunity, but so is the Select Committee on Communities and Local Government, which heard from many witnesses and took much evidence. The Committee concluded that the business rates reforms

“are, nevertheless, transformative and create a real opportunity for local government; in retaining 100 per cent of business rate revenue, councils will have a direct and strong incentive to promote local growth and economic development.”

Does the hon. Gentleman not agree with the Select Committee and its Chair, his colleague Mr Betts?

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

I bow to no one in my admiration of the Chair of the Communities and Local Government Committee. I am glad that the hon. Member for Thirsk and Malton mentioned the Select Committee report, because it said some interesting things about the potential volatility of the business rates income and the need for an effective safety net. One wonders how that will work in practice without the levy arrangement that we are discussing. My hon. Friend the Member for Oldham West and Royton is itching to get into the debate on the safety net, and I will not stand in his way when we come to it, but I hope to catch your eye after he has spoken, Sir David, to explore the concerns of the Select Committee a little more.

To return briefly to the levy, Maidenhead pays 50% of its future business rates growth into the levy, but frankly does not have to do much to benefit from economic growth because of its location. If Maidenhead does not serve as a warning to Conservative Members, perhaps the London Borough of Hillingdon will. It, too, will benefit hugely from the construction of a third runway, and will not have to do much to promote economic growth—it will not need to, because of the strategic decision that we have taken. Hillingdon’s council has a levy rate of 50%.

The hon. Member for Thirsk and Malton has used almost all of his interventions in Committee so far to bash London authorities and demand that spending power be redistributed away from London to North Yorkshire. I do not get the sense that he cares about anybody else’s local authority—not even those of Members on his side. One would have thought that he might therefore be sympathetic to our concern that on the face of it, Hillingdon’s council will no longer have to make a significant contribution to the redistribution to others.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton 3:00, 7 February 2017

The hon. Gentleman says that I do not care about other local authorities, yet earlier I quoted York, which has one of the lowest amounts of spending power per head. Windsor and Maidenhead has the lowest, and Trafford the third lowest. There is also Leicestershire, Staffordshire, Northampton, Kirklees, Swindon, Warrington and Medway. I speak on behalf of all these authorities that have approximately 50% of the spending power of the London councils I mentioned. Does he agree that that cannot be right?

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

As you can see, Sir David, the hon. Member for Thirsk and Malton is a passionate advocate for redistribution away from London. We have tried to convince him to get underneath the detail of the scale of need in London, but clearly we have been unsuccessful today. A little progress is needed. I have made the point that I wanted to make. I look forward to the Minister’s answer, and the response of my hon. Friend the Member for Oldham West and Royton.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank the hon. Members for Harrow West, and for Oldham West and Royton, for the amendment, and for the opportunity to set out why we want to remove levy payments. As the hon. Members have explained, the amendment would retain the Government’s ability to make regulations requiring a levy. As we set out when we announced our intention to move to 100% rates retention, we do not believe that imposing a levy on growth is desirable; nor is it necessary for the purposes of funding the safety net. Through rates retention, we want to encourage and incentivise authorities to work with their businesses and communities to deliver economic growth. We want them to use their powers, through the planning system and more widely, to support development and create the conditions in which business can thrive. Where they do so, we want to allow authorities the benefit of all the growth in their business rates that will follow.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

We heard from my hon. Friend the Member for Harrow West that Maidenhead is paying a 50% levy. That suggests that it has done well in growing its business rates—good for it. Can the Minister tell us what places such as Maidenhead have done to grow their business rates base, so that other councils, such as mine, could learn lessons from Maidenhead?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Certainly. There is good practice happening in local authorities, and I would always recommend the hon. Gentleman’s local authority taking a leaf out of the book of a good Conservative authority that is doing the right thing on growth.

The levy works as a tax on growth, taking up to 50% of any benefit that authorities may have seen. This certainly acts as a disincentive and, for that reason, we have said clearly that we want to remove the Government’s ability to set a levy. Nor do we believe that that the levy is necessary as a way of funding the safety net. To come back to the comments of hon. Member for Oldham West and Royton, there are other, fairer ways of dealing with the safety net, the most obvious being to take a top-slice at the point at which we set up the scheme and use that to fund any safety net payments needed.

If there is no need for the levy, there is no need for the levy account. Indeed, if such an account was prepared, there would be nothing to report in it. In that sense, this matter is quite simple: we will abolish the levy, and therefore there is no need for the levy account. I hope that the hon. Gentleman will withdraw his amendment.

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

I thank Members who have contributed to the debate. I am left slightly worried that the Minister does not understand the levy mechanism and the function of local government group accounting.

The Department is required to produce group accounts for local government that show the balance of transfers between local authorities and the Department. Whatever mechanism is in place to provide payments to and fro requires an account to be set up, because if an account does not exist, it will not be included in the group accounts and will be off the books, which makes no sense. We could call it a different name, but the function of an account is that it sits somewhere and annually feeds into the group accounts, which give the Chancellor an overview of departmental spend, and that is fundamental to how we account for public money. We could call it a levy account or even the Jones account, for all local authorities care, provided there is an account to be drawn upon.

At the moment, the top-slice is funded by revenue support grant. It was £120 million; it went down to £50 million in 2015-16. The Minister did not say this, but I take it that if the money does not come from a top-slice of revenue support grant, it will come from the £12.5 billion of additional money through 100% business rates retention.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

The Government have been clear that through the implementation of this system, local government will not be worse off, and that we will not expect local government to bear the burden of the safety net in the system. Does the hon. Gentleman not accept that?

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

I find that contradictory. Either the burden will be on central Government, which means there will be a requirement to find the money from elsewhere in Government, or the money will come from existing budgets within local government, which means local government will take the burden.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

At the moment, the majority of funding for the safety net comes from the business rates that are not going to local authorities.

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

I accept the point, but the Minister must accept that over the past two financial years, £170 million has been taken from revenue support grant top-slice. That money will need to be provided from somewhere, because at the moment there is a deficit in the levy account of something like £14 million. That shows more money is being drawn down from the account than is being added on top through revenue support grant top-slice or business rate levies from authorities that are exceeding their profiled business rates increases.

The Government cannot have it both ways. The money is either already within local government and is just being re-profiled, or it is coming from elsewhere within Government, in which case it will be a burden on other departmental budgets. We will come on to safety net payments later; this is simply the mechanism by which we make those payments. Either way, we will need group accounts. We have to account for the transfer of funds from one departmental account to local government. I do not intend to press the amendment to a vote; it was a probing one.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The Minister’s response is disappointing. The amendment would retain the levy. He urges the Committee to reject the amendment and to abolish the levy because, according to him, it is acting as a disincentive to growth. When I asked him for evidence of that at the evidence session, he could not produce any.

I am open to persuasion, but—call me old-fashioned—I like a bit of evidence. When I asked the Minister today what Maidenhead has done well to be in a position where it pays a 50% levy, he could produce no evidence. Since Monday last week, he has had his officials available to produce some evidence. However, he has produced no evidence for his assertion that a measure such as the abolition of the levy will incentivise councils more than they are incentivised already to grow the businesses in their areas, thereby increasing business rates revenue.

Therefore, I am driven to the conclusion—I hope the Minister can dissuade me of this—that his arguments are totally hollow and mere assertions backed up not with evidence, but merely with a hope that the changes promulgated in the Bill, including the abolition of the levy, will produce the intended effects. In the absence of evidence, I find that singularly unconvincing.

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

I agree with my hon. Friend that the evidence base was not provided in our evidence session. We have asked for written evidence, but it has not been forthcoming. It is difficult to scrutinise, given the throwaway comments that have been made.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

During the opportunities to challenge and ask questions of the witnesses, did any Opposition Member ask that question of the witnesses during the witness session?

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

I thank the hon. Gentleman for that intervention. He was at the hearing when that question was asked. The answer was less than forthcoming, but there was an answer of sorts. The question from my hon. Friend Member for Wolverhampton South West is in Hansard. It is on the record, as a matter of fact. It is also a matter of fact that the answer has not been provided.

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

My hon. Friend’s point is about the lack of evidence for the great assertions by the hon. Members for Thirsk and Malton and for North Swindon, never mind the Minister, that economic incentives will flow afresh. One would have thought that Ministers would have had some sort of economic impact analysis to offer, but there is no Green Paper, no White Paper and no sign of any evidence that this will be the new Jerusalem we have been promised.

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

Sir David, you have been very patient in this debate. To be fair, we had the exchange in our evidence session and we have had a protracted debate during our last couple of sittings. In some ways, we are going around in circles. We have repeatedly asked for the evidence base. We have asked what end we are working towards and what evidence base underpins that approach. Consistently, that has not been forthcoming. It is right, therefore, that Members continue to press the matter, but we need to make progress. We need to be slightly mindful of the time we have already taken and the number of amendments that we need to get through.

Even if the ambition is for 100% business rates retention and there is a view—the evidence base does not support this—that having any kind of clawback facility would inhibit growth, actually, the legislation provides for the levy account to remain in place and to be zeroed. If at some point it required a top-up, because there was not enough money in the levy account to provide the safety net payment, the Minister, without going through the rigmarole of Bill Committee sittings and all the other things we do here, would be able to change that through negotiation and consultation with local government. It strikes me as a complete dereliction. There is not just a lack of evidence—the provision is quite reckless.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution) 3:15, 7 February 2017

I beg to move amendment 32, in schedule 1, page 36, line 2, at end insert—

‘(1A) In sub-paragraph (1)(a), after “year,” insert “on the basis of a safety net payment threshold that is not less than 95% of the authority’s baseline funding level for the relevant year’.

This amendment, together with amendments 33 and 34, would ensure that the threshold at which an authority receives safety funds is a fall in income of not more than 5 per cent.

With this it will be convenient to discuss the following:

Amendment 33, in schedule 1, page 36, line 7, at end insert—

‘20A (1) Paragraph 26 (calculation of safety net payments) is amended as follows.

(2) In sub-paragraph (1)(a), after “year,” insert “on the basis of a safety net payment threshold that is not less than 95% of the authority’s baseline funding level for the relevant year,’.

See explanatory statement for amendment 32.

Amendment 34, in schedule 1, page 36, line 8, leave out from start to “omit”.

See explanatory statement for amendment 33.

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

There is a theme running through this group of amendments, as there has been previously. We have talked about the mechanism by which we account for the money coming in being paid out to local authorities. We have talked about the principle of having the levy account in place. The amendment is about the purpose of the safety net payments to local authorities.

The principle of the safety net is fairly clear-cut: it provides an element of protection that is completely in line with the concerns raised by the Select Committee inquiry. That was not a press release or report from nowhere; it was the result of a number of thoughtful, well researched hearings, where the evidence base was scrutinised. The headline was that it is absolutely right, and to be welcomed, that we move towards 100% retention, but serious questions remained about how we redistribute within the system and about what safety net mechanism would be in place to ensure that if a local authority had a shock to its business rate base there would be sufficient funds somewhere for it to draw on.

It is fair to say that, although the Select Committee showed support for the first element, the safety net issue has not been resolved satisfactorily. We have not had details about what system might be in place. We have not been told how much will be provided in the safety net pot to ensure that it is sufficient to provide for the different types of shocks. We have not been told, for instance, by what percentage a business rate base would have to fall before a local authority was eligible for a safety net payment. All those points, which are fundamental to understanding whether a safety net is a true safety net or whether it has gaping holes in it, are critical to the debate. That is why we tabled these amendments.

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

My hon. Friend will remember the intervention from the hon. Member for Thirsk and Malton, in which he prayed in aid the Communities and Local Government Committee report in defence of his case. Has my hon. Friend noted at paragraph 56 of that report the concern of Sharon Gregory, who said that Cambridgeshire and Northamptonshire county councils

“have some very big businesses that represent a large proportion of the business rates base, and there are significant risks around those businesses leaving or failing”?

Surely that underlines his concern on the safety net.

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

I absolutely agree with that point and on the thrust of the challenge to come. I hope that in response the Minister will address that issue and those raised by the Select Committee and the LGA, and in the lesser-spotted consultation response, which hopefully we will get a flavour of later.

When the safety net system was set up, the statement of intent—this was in 2012—was clear in its aims. It said:

“The Rates Retention Scheme will include a safety net to protect local authorities from significant negative shocks to their income by guaranteeing that no authority will see its income from business rates fall beyond a set percentage of its spending baseline.”

That essentially means that central Government accept that there is an inherent cost in providing public services at a local level across the range of 700 or so council services, and local authorities and communities should not be put at risk to such a degree. Let us say that a local supermarket decides to close. In many areas that could be a £1 million a year business rate base taken away from a town. That would have a significant impact on local public services, and the local authorities could call on the safety net.

There was always a facility to say, “A business might leave today, but tomorrow you might attract further investment, and that could make up the difference.” There is a facility in the system to recoup any overpayments above the baseline. The safety net is there for the right reasons and the principles are sound. They are supported by the LGA and, I assume, by the Select Committee. They are supported by individual local authorities, which call on that fund because it absolutely makes sense. Their youth centres, day care centres or support for older people in the community should not be vulnerable to Tesco or Sainsbury’s deciding to up and leave town. That would instinctively be the wrong way to run a fair and balanced community. As I have said, the payments that have been made from that account are not insignificant. In 2015-16, the Secretary of State paid £112 million to local authorities. I will not repeat the point about the type of services that can be provided for that kind of money, but we can imagine that, across a range of 326 local authorities, that would have a significant impact on their business rates.

If I think of my own local authority of Oldham, I consider it to be a double cruelty that the Government are closing central Government departments in my town, such as the HMRC offices and jobcentre offices. The county court is closing soon, the magistrates court has already closed, and the number of police stations has reduced to a third of the number before. The local authority has closed day care centres and youth centres and a range of public buildings just to try to balance the books balance. Is it not cruel that because of that its business rate base will be affected? Not only has it reduced the number of public services because its revenue support grant has been taken away, but it is potentially having the safety net snatched away that would have protected it from the loss of business rates in those areas.

It is beyond negligent; it is almost vindictive now. The Government are kicking local authorities when they are down and some local authorities are absolutely down on their knees. We have heard about the issues in North Yorkshire. It is right that Members are here to represent their constituents.

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

On that point, does my hon. Friend want to try to stimulate the interest of the hon. Member for Thirsk and Malton in Stockton-on-Tees Borough Council and its concerns about the safety net? He was on the Select Committee when it gave evidence. It said:

“The safety net is set too low with local authorities being required to accommodate very significant reductions in income before triggering it. Based on the current system, Stockton would need to lose approximately £5 million in one year before it is activated”.

Does that not underline my hon. Friend’s concern?

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

It does underline the concern. In the last financial year £112 million was drawn down from the scheme. That was in the context of local authorities still receiving revenue support grant on top of their council tax and business rate income. As we move towards the brave new world—there is a fine line between bravery and stupidity, but let us call it brave for now—whereby councils will be funded solely by council tax and the business rate base that they can generate, councils are even more vulnerable to shocks in the system where business leave and they are forced to deal with the consequences of that loss of income. Without the safety net system in place—

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

The whole thrust of the hon. Gentleman’s argument is that the Government are going to get rid of safety net payments. Where has he got that idea from? Does he not think that the business rate retention pilots that are taking place in a number of areas are a good thing for the Government to work out that they have struck a balance to ensure that, when we roll out the full system, it is as right as it can be?

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

I take the Minister’s point entirely. It would be easier if we had a scheme that we could review and scrutinise and ask questions about, based on the scheme that was presented. In the absence of that, we are relying on the Minister sharing every now and again the fount of wisdom from the notes that are passed to him by his advisers, which is one way of doing government, I suppose. Another way of doing government is to consult, to speak to the sector and to understand what is coming back. We know a consultation has been conducted and we look forward to the results of that, but a consultation was also undertaken when the scheme was introduced in 2012. At that time, the Government reviewed the type of safety net that would be needed for it to be fair and balanced. At the time, the percentages that were considered were 7.5% to 10%. In the end, the Government erred on the side of caution and went for the 7.5% level. That was the result of that consultation. It was the result of an assessment of what type of safety net would be robust and provide certainty. So we have been there; we have done that. We have been through that process.

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

It is interesting that the Minister should stand up and pray in his defence the pilot authorities and the way in which they are implementing the safety net scheme, if indeed they are. We could have used that information to inform our contributions, but sadly the Minister is not intending to publish any details of how those pilot authority schemes are going to work until after this Committee has concluded its deliberations.

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

I am going to be charitable. Perhaps I am too soft for my own good. I feel a slight degree of charity towards the Minister given the fairly rough ride that he has had—a rough ride of his own making. I will not prolong that. Labour Members question whether the knowledge is there, even, for the Minister to understand the Bill, whether the diligence has been there to assess the impact that that has had, and whether the capacity is there to bring forward the type of information that would lead to a meaningful debate. I would be far more generous than that and say that perhaps today is just not the Minister’s day. However, we will be here again and we can review the information when it comes. I hope that we will have a better session, the Minister will feel far more empowered, better informed and on the front foot, and we as an Opposition will feel that we are able to hold the Government to account, which is why we are here. We are not here to have circular discussions that take hours and hours of parliamentary time. We are here to get to the root of what the Bill is intended to do and the impact of the Bill. By doing that, we make good laws—we know the impact and we know, collectively, that we are making the right decision, not a bad decision in the absence of that information.

We have heard that there will be some kind of safety net, although we do not know what the criteria or threshold will be. We are discussing the pilots that are taking place, but a number of pilot authorities have not been told what the safety net will be. We are expected, outside of those pilot authorities, to make an assessment—a leap of faith almost—that those pilot authorities will deliver the evidence base required, when they themselves do not know what the new settlement will be, and they are waiting for the Secretary of State to confirm that to them.

A lot of people in this place and in local government are waiting for some clarity. I am pleased that, during the exchanges, we have at least agreed a principle that a safety net is required. However, the real test is not words. The real test is the application of the legislation going through.

I hope that the Minister will answer this. The threshold is 7.5% below the base. Members will know from our amendments that we are suggesting a more favourable rate of 5%. The reason is that, as revenue support grant is being taken away, local authorities are more vulnerable to business rates and it feels as if that is the right balance to strike. I ask for a quick response from the Minister: what will the percentage be?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

It is a pleasure to follow the hon. Gentleman, who is giving me something of an education, or thinks he is giving me something of an education, on this issue, such a placid fellow that he is. I thank him for tabling this amendment and for giving me the opportunity to set out the Government’s approach to the safety net. He seemed to ignore most of the information that had come forward and was almost saying that the Government were not going to put in place a safety net. I agree with him that a safety net is an important element of the system and will certainly become more so—again, agreeing with his analysis—once we are relying on business rates for a larger proportion of councils’ income. Where I must disagree with him is that these amendments are the best way of ensuring that we have the most appropriate safety net in place for the new 100% system. These amendments would hardwire the current arrangements into the system by requiring the safety net to be measured against baseline funding levels. However, that is only one way in which we could construct the safety net under the legislation as drafted. There are others—using different baselines, for example, or providing for different percentage losses for different types of property. Until we have finished our work with the local government sector and put in place all the scheme’s design elements, it is too early to say what form the safety net should take.

It is entirely possible and perhaps likely that the safety net will be constructed along similar lines to how it is constructed now, but if so, it is not clear that 95% baseline funding level is the right threshold. Indeed, in the pilot areas I have referred to, we are testing elements of the 100% rates retention from 2017 and have set the safety net at a 97% threshold. I will certainly want to see how that works before I commit myself to the design of the safety net under the full scheme.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 3:30, 7 February 2017

That is the first bit of clarity about how the pilots are working—I was going to ask what the safety net was in context. I simply praise the Minister for giving just a tiny fraction of information about how the pilots are going to work. It would be nice to have the rest of the information before the end of the Committee.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

It is always nice to have praise from the hon. Gentleman, which is quite often difficult to come by.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Such are his high standards, indeed.

Getting back to the real world, I add that amendment 34, by reversing the Bill’s removal of sub-paragraphs 25(2) and (5) of schedule 7B to the Local Government Finance Act 1988, would make it impossible to deliver changes for which local government has asked. The changes we want to make through the Bill mean that, in future, safety net payments need not be made at the end of a financial year. Instead, as with other payments under the scheme, they can be made at the beginning of the year, based on the estimates, and then reconciled at the end of the year once outturn figures are available.

Authorities asked us to make that change as soon as a legislative opportunity arose. The changes made by the Bill have no material effect on what authorities will receive in safety net payments; they simply change the way in which we account for them. I hope that resolves some of the concern of the hon. Member for Oldham West and Royton.

In conclusion, the amendments, if allowed to stand, would remove the flexibility that we and the local government sector need to design a safety net regime that is fit for the needs of 100% business rate retention. They would reverse a change that local government welcomes for which it has long called. I hope that, with that explanation, the hon. Gentleman withdraws amendment 32 and does not move amendments 33 and 34.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I know it is sometimes difficult for Chairs and I wanted to hear what the Minister said to know whether I wanted to speak.

The very helpful library brief says on page 19:

“It is not yet clear what form, if any, the safety net would take under 100% retention of business rates.”

That was published almost three weeks ago on 19 January. It is singularly disappointing when the Minister comes before a Public Bill Committee of the House of Commons and says, “Oh, I cannot give you any information because the Government want the flexibility.” I understand why Governments want flexibility. When my party was in office, it always wanted flexibility. I kept saying, “I do not think you should have that flexibility in lots of cases.” To use the vernacular, the Minister and his Government ought to show a little more ankle. Otherwise, they are asking us to buy a pig in a poke, which I think is unacceptable in a parliamentary democracy.

We ought to have the information. What is the big rush? This is so that the Government can get the Bill through, with all its flexibility. The amendments would lessen that flexibility, which is why they are good amendments. The Minister has nothing to counterpose that with, except to say, “We’re talking about 97%, but we want the flexibility.” I am sure he wants the flexibility, but that kind of flexibility is not good for councils—not only Wolverhampton City Council, but councils around England—because of the uncertainty.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Does the hon. Gentleman not accept that local government itself has requested that flexibility?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

In that case, the Minister should not have introduced the Bill at this stage or until he has got his ducks lined up.

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

You have been extremely patient with us, Sir David. We have got to a position where there is agreement, in principle, on a safety net.

We have a sense of what the pilots will bring in terms of their 95% baseline protection. However, I challenge the idea of pointing to any pilot and giving the impression it could be rolled out as a national scheme. We know that any pilot can be made to work with the right energy and finance behind it, but having a safety net of that order without new money in place would be very difficult. I would like to see the figures on that, to test what it would mean in practice. When the last review took place and we were looking at a 7.5% threshold, it was very difficult to make a national scheme stand up in a way that encouraged growth and allowed areas to keep an element of what they were developing through their efforts, and that brought money back into a central pot.

We still unfortunately do not have sight of what the finances mean overall, but we have a flavour of what the pilots mean. We have been told that the measure will not be a new burden, but will be accommodated for within local government spend. We know that the only real room is in either the grants given to local authorities or the business rates and the £12.5 billion that has been referred to.

As we have heard, there is a great call on what feels like an ever diminishing resource. We talked about the £7.4 billion revenue support grant that will need to be accommodated. We talked about the £65 million rural services delivery grant, the £3 billion public health grant, the £105 million improved better care fund, the £177 million independent living fund and the £3.4 billion early years grant that will need to be accommodated—not to mention the £3.2 billion of business rates relief payments currently within the system. We still have not had clarity.

Excluding the relief payments, just those grant payments, which could well be deleted as part of full business rates retention, are £14.7 billion. Only £12.5 billion is going back into the pot. If there is going to be a safety net, where will the money come from? A bit more information on that would be extremely useful for us to give proper scrutiny and hold the Government to account. These were probing amendments. We made a bit of progress, although not as much as we would have liked. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment 47, in schedule 1, page 37, line 5, leave out sub-paragraph (3).

This amendment would remove the proposed power of the Secretary of State to force an authority to join a pool. It would retain the current position where every authority covered by a designation must agree to it; and that the designation can be revoked only in limited circumstances, including a request from an authority covered by the designation.

With this it will be convenient to discuss amendment 28, in schedule 1, page 37, line 7, at end insert

“only if—

(a) an order to that effect has been made in the form of a statutory instrument and has been approved by a resolution of each House of Parliament, and

(b) the relevant Select Committee has been consulted.”

This amendment would ensure that any revocation of a designated authority must first be approved in the form of a statutory instrument and consulted upon with the relevant Select Committee.

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

We are moving naturally through the principles of a levy account system being maintained, a safety net being provided and, as the Minister referred to, the business rate pooling arrangements that are being piloted in a number of areas.

The principle of pooling is sound. It is one that local government has asked for and one I personally support. We recognise that the development of a business base is not necessarily predicated on local authority boundaries. We have heard the example of Heathrow and the impact there. The same is true in Greater Manchester, where we see the economic area and the businesses developing in that city region acting separately from the local authority boundaries because they are acting as one economic unit. I fully understand the principle behind that and why we would want, on that basis, to have a single budget or business rate pooling across that area.

Where pooling works—this is true of the pilot—it is because, first, there is an understanding of the financial relationship. Sir David, I do not know whether you have taken the opportunity, as I have during one of my nights of insomnia, to go on the DCLG website. People can type in the details of their local authority into the website and assess whether business rate pooling would leave them in a better or worse net position. The idea of that is to give agency to local authorities to determine for themselves what is right for them before they even enter into negotiations with central Government. That is an empowering way of doing that.

Local authorities then speak to areas within a natural pool. Where they have a logical economic centre and want to come together, they can assess what that new settlement would be, and whether they would be in a better or worse position as a result. They will get together; discuss with their neighbouring authorities what works in their locality; agree which local authority will be the lead local authority; and, on that basis, make a bid to the Government to be a pilot authority. In the spirit of localism, that is the right way of doing it. We are allowing a grassroots organisation to take place, where people come together, have the information to hand to make an informed decision, and come to the Government and say, “We think this is the best deal for our community.”

That is inspiring, but unfortunately, the Bill is an absolute shift in the culture and balance of that relationship. Rather than local authorities being able to come together and co-produce, and rather than it being a relationship of equals in which local authorities choose other authorities to join and then present to the Government, the Secretary of State can mandate local authorities to come together, potentially against their wishes, and can mandate who the lead authority will be. The direction of travel is very unsettling.

In any relationship of equals at a local level, coming together to create a business rate pool is usually only one element of a complex relationship of working together in the interests of a locality. I worry that, by imposing one lead authority, potentially against the wishes of other neighbouring authorities, the Government will fundamentally change the balance of trust and the relationship within that locality. That could impact not just the business rate pool and support for it, but other joint work that will be critical for the successful delivery of public services and economic growth in our areas. When the Minister responds, it would be helpful to get a flavour of where he, on behalf of the Secretary of the State, believes that the power could be implemented in future.

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

Is this not an example of the nanny state at its very worst, and of the Minister-knows-best mentality which, despite all these pretentions of great commitments to localism, seems to run through the heart of this Bill, with its 56 new powers over local authorities?

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

It is. I worry about scale. The 18 business rate pools reported to have come forward so far have a collective rate base of £159 million above their baseline, so they are net beneficiaries. We can see why they would want to adopt that position and make that application. However, some areas could be disadvantaged as a result of being in a business rate pooling arrangement. Those areas may not want to be part of a business rate pooling arrangement that is forced on them.

We have heard about the 56 additional powers that the Secretary of State is introducing for himself. We are meant to be about localism, and about giving power back to communities and to their directly elected local authorities. That is not the flavour of the Bill—the opposite runs right through the core of every element in it. The Bill is about is an empowered Secretary of State, and a complete lack of parliamentary scrutiny, oversight, challenge and a democratic vote.

The Bill is also not even about Government doing deals with local authorities in smoke-filled rooms, which has been the nature of devolution discussions so far, when areas are picked off against each other. That at least required local authorities to consent. Even though it lacked transparency, and even though it lacked a national framework so people knew what they were bidding for at a local level, it at least required that they were consenting parties to that relationship. That will not be the case. Unless the amendments are accepted, the Secretary of State will have absolute power to impose his will on local authorities whether they like it or not, and whether or not it is in their interests and right for their communities, and to hell with consequences for the local relationships that could be affected.

The amendment is fundamental to what we believe devolution and localism to be. I intend to press amendment 47 to a vote, because we feel so strongly about giving our councils agency and independence and a genuine relationship of equals with the Government. If the Government do not accept the amendment, it will be a message not only to the Opposition but to every local authority in the country. The Government will be saying, “What you want is not as important. It’s not for you to determine what’s right for your local area. If we want to do it and feel like doing it, we can impose our will whether you like it or not.” That is a very slippery slope.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government) 3:45, 7 February 2017

I thank the hon. Gentleman for tabling these amendments on the creation and revocation of a business rate pool.

The intention of the amendments seems twofold: to retain the requirement that each relevant authority must agree before the Secretary of State can designate a pool, and to require that a decision to revoke a pool should be approved by Parliament and subject to consultation with the relevant Select Committee. I will deal with each of those in turn.

As a principle, the Government believe that local authorities can achieve greater impact when working together, and that pools of authorities can benefit from working over wider areas to achieve economic growth. That is why we want to continue pooling arrangements under the new business rates retention system. Business rate pools enable the local authorities within them to be treated as a single entity for the purposes of the system, allowing them to co-ordinate their work and take a coherent set of decisions to help secure economic growth over a wider area. Paragraphs 26 and 27 of schedule 1 provide that the discretion to create, vary and revoke pools lies with the Secretary of State, with a new requirement for a statutory consultation with relevant local authorities on the creation and variation of a pool.

We are introducing those changes because, in the Government’s view, pooling has not worked under the current arrangements as well as it could. The current voluntary approach to pools can incentivise the wrong behaviours, leading to examples where pools across functional economic areas have excluded a single authority due to them being perceived as high risk. That undermines the objectives of pooling and potentially reduces the ability of pooling to secure co-operation and coherent decision making across a sensible economic area.

Amendment 47 would remove the provision enabling the Secretary of State to designate a pool at his discretion. That would, in effect, preserve the current arrangements whereby a pool can be designated only if every authority in the pool area has agreed to it. The risk of a single authority being excluded from sensible pooling arrangements would remain. Removing the requirement that all authorities must agree to being designated as a pool will enable the Secretary of State to ensure that pools are created across functional economic areas that maximise opportunities for growth.

We recognise the ongoing need to work with local authorities on sensible pooling arrangements and have introduced a statutory duty to consult with areas on their pooling arrangements. As I said at the outset, the ultimate decision will rest with the Secretary of State, helping to ensure that all authorities in a functional economic area will engage fully in those discussions.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The Minister is saying in terms that the Government are going to introduce a centralising measure because sensible pooling has not always worked to date. I understand that concept. He knows what I am going to say. Could he produce some evidence that pooling arrangements hitherto have not worked properly in some areas? I know he is not saying that that is the case everywhere, but can he give us one example to elucidate why the Government think these centralising powers are necessary in what purports to be a localising Bill?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

As I said, there are places where a view has been taken that certain local authorities are too risky to be included in a business rate pool and, therefore, have been excluded. Returning to the theme the Labour party has used—

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I will in a moment.

Throughout our deliberations on the Bill, it is apparent that local authorities have asked for fairness within the system. The challenge is whether that fairness is apparent if a local authority is excluded from a pooling arrangement because surrounding local authorities do not want to include it. Clause 3, which the Committee will consider later, provides an additional tool to strengthen the role of pools to help secure economic growth, with rewards being shared across the pool.

Amendment 28 aims to ensure that Parliament has a role in revoking a business rates pool—paragraph 26 of schedule 1 enables the Secretary of State to revoke the designation of a business rates pool. Revoking a business rates pool is a technical matter, working with the authorities involved to consider how each one operates independently. The Government are concerned that requiring every decision about revocation of the business rates pool be taken through each House and made subject to consultation with the Communities and Local Government Committee would take up valuable parliamentary time. The current process for revoking a business rate pool does not require parliamentary approval or consultation with the Select Committee. The Government do not believe that change is needed.

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

I repeat the perfectly reasonable question from my hon. Friend the Member for Wolverhampton South West. Can the Minister refer to one example where a local authority has been excluded?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I think there is an example I could point to. In Surrey, district councils have come in and out of the pool in different years. As I said before to the hon. Gentleman, we need to ensure with this new system that we have certainty for local authorities.

Photo of David Mackintosh David Mackintosh Conservative, Northampton South

When I was a council leader, we changed our pooling arrangements. I can testify—and I am sure the Minister will agree—that that is very disruptive for local authorities, particularly when they are trying to plan. It is also disruptive for businesses.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

My hon. Friend makes the exact point I am trying to make—local authorities require certainty. The measures we have put in place over the last year or two on having a longer-term view of council budgets has helped. Within this system, we want multi-year arrangements for local authorities so they know where they are heading. In having more settled business rate pools that make sense in terms of functioning economic areas, we will seek to deliver that certainty and security for local authorities. By definition of what the hon. Member for Oldham West and Royton has said, local authorities need more security and certainty in the new system. Local authorities take on a greater risk challenge if funding is distributed by central Government to them, rather basing local government on locally collected taxes.

Overall, the changes to pooling arrangements will ensure effective business rate pools, with other tools to help drive economic growth. I therefore ask the hon. Member for Oldham West and Royton to withdraw his amendments and commend paragraphs 25 to 31 of schedule 1.

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

As I said earlier, we feel strongly about amendment 47. The Bill would fundamentally change the relationship between local government and the Secretary of State, which we do not believe is in the interests of democracy or localism.

I have the Minister’s response. There is some merit in having a system in place that provides a degree of certainty, but that could be provided, for instance, by a longer notice period—local authorities wishing to leave a pool could give two years’ notice rather than 12 months’ notice if required—which would at least give the degree of planning certainty required. It could well be tied to economic deals done through negotiations with the Government. For instance, if an economic deal lasted five or 10 years, there would be some sense in saying that, during that period, it should be tied to the business rate pool.

However, that is not on offer. What is on offer is: “Take or leave it. The Secretary of State knows best.” Areas will be forced to join the pool. The example given is of a local authority that wants to join a pool but is told that it cannot for whatever reason. I suspect that that the number of such examples is very low. It is more likely that, when a local authority does not want to join for whatever reason is right for its community, the Secretary of State will force it to do so to make a wider pool balance out without having a requirement for central Government funds. I suspect that that is more what the measure is about. I am concerned that the balance of power is changing between national level and local level. Further powers are being given to the Secretary of State, and further mandating can be required, but there is less parliamentary scrutiny.

There is also an unhealthy rebalancing of relationships in some local areas. We talk about the Greater Manchester business rate pool as being one to look at, as a pilot—we are doing so very carefully. However, it would allow the Cheshire authorities to obtain 50% of growth before they returned to the pool. As I have said before, there might be an argument for that, given that it sits outside the city deal that has been agreed as part of the devolution deal, but it beggars belief that two authorities within Greater Manchester—Trafford and Stockport—have negotiated as part of that business rate pooling an agreement to keep a third of growth to themselves before it goes into the pool.

We believe that at a national level, we should agree a way of redistributing that it is the same for everybody, but instead there are deals within deals. Those who write the cheques always have the upper hand, and not those who are potentially the receivers. I do not believe that that is in the interests of the communities we are here to serve. I certainly do not believe that it is in the interests of an equal, balanced relationship at a local level. Although amendment 47 is not quite in the spirit of previous amendments we have voted on, I ask the Minister to support amendment 47 to maintain the balance of a healthy relationship.

Question put, That the amendment be made.

The Committee divided:

Ayes 6, Noes 9.

Division number 4 Seasonal Working — Local retention of non-domestic rates

Aye: 6 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Question proposed, That the schedule be the First schedule to the Bill.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

We have spoken at length on proposed amendments to schedule 1. I do not want to take too much of the Committee’s time, but I would like to say a few words about specific parts of the schedule.

Schedule 1 amends section 7B of the Local Government Finance Act 1998. Those amendments are necessary to move from the current 50% business rate retention scheme to a system where local government retains 100% of business rates raised locally. I will take each section in turn.

Paragraphs 2 to 6 of schedule 1 make provision for central Government accounting for non-domestic rating income. Those paragraphs amend the Local Government Finance Act 1988 to update and simplify the central Government accounting requirements for the move to 100% business rate retention.

The requirement for the Comptroller and Auditor General to lay in Parliament a statement of accounts setting out the annual results of the non-domestic rating scheme will be retained, but the list of debits and credits required for that account is being removed from primary legislation. Instead, the amounts to be credited and debited to the account will be such relevant receipts as the Treasury may direct. That will bring the statutory requirements for accounting for non-domestic rating income in line with the requirements for other central Government accounts. It will also remove the risk that future changes to non-domestic rating cannot be adequately reported in the accounts without an additional change to primary legislation, simply because the list of allowable debits and credits is set out in statute.

I should be clear that the changes set out in paragraphs 2 to 6 of schedule 1 will have no effect on the practical operation of the non-domestic rating system or the transparency of its operation. The changes have been discussed with local government representatives who have confirmed that transparency will not be reduced. I believe that it is right to take the opportunity to simplify central Government accounting and therefore recommend that paragraphs 2 to 6 of schedule 1 stand part of the Bill.

Paragraphs 11 to 13 of schedule 1 remove the current requirement for an annual local government finance report approved by the House of Commons and provide for redistribution calculations to be made over a number of years based on a set of principles of allocation. Under 100% business rate retention, there will no longer be a local government finance settlement that distributes central grant to support local services. Local authorities will become more financially self-sufficient, funding local services from local resources. With services financed locally, councils will need to be even more accountable to their electorates, rather than to Ministers in Whitehall.

Those paragraphs ensure that there will no longer be an annual finance settlement reviewed and imposed by Westminster each year. Councils will no longer have to live hand to mouth, coming cap in hand to central Government; instead, the Government will set the funding envelope and will be required to consult local government on the principles for allocating funding over a period of years. It will then be for councils to grow their income by attracting businesses to their local economy and building more homes, to set appropriate council tax levels, and to work with local partners to deliver more efficient and more joined-up services.

Paragraphs 11 to 13 also provide a clear framework in law for multi-year settlements. The Government have offered a four-year settlement to provide funding certainty for local authorities, as I mentioned, and I am pleased to say again that 97% of councils have accepted that offer. However, the House must currently re-approve the offer every year, reducing certainty for local authorities.

The changes also relate to clause 1(3), which removes the revenue support grant— that will help to move local government away from dependency on Whitehall—and to clause 4, which provides a similar framework for long-term stability in the setting of council tax referendum principles. I therefore recommend that paragraphs 7 to 17 of schedule 1 stand part of the Bill.

In clauses 1 to 3 and paragraphs 1 to 31 of schedule 1, we have made substantive changes to the parts of schedule 7B to the 1998 Act that provide for non-domestic rating and levy accounts, central and local shares, payments by billing authorities to major precepting authorities, the payment of tariffs and top-ups, levy and safety net payments, and pooling. However, other parts of schedule 7B do not need substantive amendment because they will continue to work in broadly the same way under 100% business rate retention.

Paragraphs 32 to 35 make such consequential amendments to those parts of schedule 7B as are necessary to reflect the substantive changes made elsewhere in the Bill. That includes, for example, removing references to the central share, which is deleted by clause 1, and to the levy, which is deleted by paragraph 18 of schedule 1. The consequential changes made by those paragraphs also update references to the local government finance report where they occur, to ensure that they reflect the new arrangements we are putting in place for principles of allocation statements and the determination of payments to and from authorities.

Paragraphs 36 to 48 of schedule 1 then make consequential changes to other legislation to ensure it is consistent with the changes made by the Bill. For example, those paragraphs make changes to the operation of local authority collection funds, provided for in the 1988 Act, to ensure that they no longer require money to be paid into or from a fund in respect of payments that have now been removed elsewhere in the Bill.

Overall the schedule provides the framework for a modernised local government finance system in which local government as a whole retains 100% of the business rates that it collects locally and there are appropriate arrangements for redistribution of resources between authorities and protections against significant loss of income. It provides a framework for the effective administration of the new 100% retention arrangements. I commend it to the Committee.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 4:00, 7 February 2017

I want to ask the Minister about one issue. Under paragraph 33(3) of schedule 1, the words

“calculations following local government finance report” are substituted by

“determination of payments for a relevant year”.

I hope the Minister can reassure me, because that change rings a certain alarm bell. It removes the word “calculations”, which implies to me the use of evidence—a formula and so on—and substitutes the word “determination”, which I infer could be a somewhat opaque and non-transparent decision on financing, thereby moving us further away from an evidence-based, transparent system to a more flexible and less transparent system. I wonder whether the Minister could elucidate—if not today, at some later point.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Thank you, Sir David, for allowing me to respond to the hon. Gentleman. As I mentioned in my quite lengthy speech, local government itself does not believe that the measures being introduced here will reduce transparency. That is certainly not our intention in making the change. I hope the hon. Gentleman is reassured by that.

Question put and agreed to.

Schedule 1 accordingly agreed to.

Clause 2