Power to specify indexation rate for non-domestic rating multipliers

Local Government Finance Bill – in a Public Bill Committee at 4:45 pm on 7 February 2017.

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Question proposed, That the clause stand part of the Bill.

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

In passing, I thank the Minister for his praise for the campaigning efforts of Robert Evans, and his support for Mr Evans’s re-election campaign.

I do not intend to encourage the Committee to object to the clause standing part of the Bill, but I want to mention some of the unintended consequences of the former Chancellor’s suggestion that in 2021, the retail prices index be replaced by the consumer prices index when it comes to uprating business rates. As we have said in earlier debates, that will potentially cost local councils some £370 million in 2020-21 alone. Ministers have given no indication of the cost in future years, but those outside Whitehall and this place who know their local authority finances have calculated that over 10 years, as a result of the decision, there could be a £3.3 billion windfall for the business community and a £3.3 billion loss to the people of England who want good services to be provided.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I refer the Committee to my entry in the Register of Members’ Financial Interests. Do not the people of England rely on the success of businesses to pay taxes and to fund local and central Government? Anything that can reduce the burden on business should be welcomed.

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

I am all for reducing the burden on business, but one does like to think that the benefit will be used for investment in future economic growth, not used to pay the rest of the tax bill or squirrelled away through some tax avoidance scheme. My purpose in speaking in the clause 5 stand part debate is to encourage the hon. Gentleman, among others, to consider the perhaps unintended consequence of the former Chancellor’s decision, which is the impact it would have on services for North Yorkshire residents and—since I appreciate that he cares a little for those in other areas—on public services throughout England.

As I said, £3.3 billion could be lost over 10 years. The hon. Members for Thirsk and Malton, and for Northampton South, will have paid much attention to the evidence that Guy Ware, director of finance at London Councils, gave to the Communities and Local Government Committee. He suggested that over 20 years, the cumulative loss to local government finance—in other words, the cumulative gain to businesses that pay business rates—would be £78 billion. The Library suggests a degree of caution about using such figures so far in advance, but the point is that while businesses will benefit, which is clearly a good thing, local authority finances will take a further hit. The effect of that on the provision of public services in Harrow, North Yorkshire, Oldham or Nuneaton is surely a concern that this great House should reflect on a little further.

I asked the Local Government Association what local authority services £370 million might buy. The association suggested that I look at the universal infant free schools meals grant to local authorities, which is some £334 million. Councils are planning to spend some £550 million on Sure Start children’s centres, and they are spending £376 million on mental health support for over-65s. That gives some indication of the public services funding that may be lost as a result of what I suspect are the unintended, un-thought-through consequences of the former Chancellor’s decision. I say gently that it makes even more of a case for some sort of regular opportunity to scrutinise local government finance on the Floor of the House, so that measures that may be good for one part of the country do not have serious unintended consequences for other parts. It is in that spirit that I took this opportunity to raise concerns about clause 5.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I echo my hon. Friend’s concerns. It is simplistic to suggest that business rates are merely a burden on business; they are also a benefit. They help. I say that as someone who has been a partner in a business that had 1,000 people in it. Not having potholes, and having street lighting, less litter and free wi-fi in town centres all help businesses, but they are paid for by local authorities, who will have less money.

Clause 5 will do away with the 1988 reliance on using the RPI. However, it does not say that we will use the CPI. It is likely that Government will choose to use the CPI, in line with what the Chancellor said in last year’s Budget, but the clause does not say that. The Minister has understandably been banging on about certainty, but this proposal would introduce uncertainty. The Government are getting rid of a measure that has been used for 29 years and saying, “We’ll think up another measure and stick it in regulations.”

Most people expect the CPI to be the indexation measure used in place of the abolished RPI measure, so why can the Government not say so? Why do they need the flexibility under regulatory powers that is to be introduced under the clause? Perhaps the Minister can explain, but it seems potty to me. Why can the proposal not be much more simple and much clearer, and provide much more certainty by saying, in legal terms, “We will no longer use the RPI pursuant to the Local Government Finance Act 1988; we will use the CPI”?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government) 5:00, 7 February 2017

The Government have committed to changing the indexation measure used in the calculation of business rates—currently the retail prices index—to bring it into line with the main measure of inflation, which is currently the consumer prices index. The clause therefore amends schedule 7 to the Local Government Finance Act 1988 and introduces a new power for the Treasury to alter through regulations the inflation measure used in the calculation of non-domestic rating multipliers. The measure was part of the £6.7 billion rates reduction package announced in the 2016 Budget. It represents a rate cut every year from 2020. It will be worth £370 million in 2020-21 alone, and the benefit will grow significantly thereafter. Those savings would help businesses to grow and support local economies.

To pick up on the point made by the hon. Member for Wolverhampton South West, the clause provides the flexibility to set the appropriate measure of inflation through regulations. However, any changes would be subject to House of Commons approval; I hope that gives him some reassurance. We are working with local authorities on the reforms to business rates to allow the sector to keep 100% of their rates. We will also consider how future changes to the indexation rate impact on the reforms, and we will respond to ensure that the financial sustainability of local government is not adversely affected.

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

When the measure was introduced, there was some suggestion of compensation for local authorities. Will the Minister comment on that today, or does he perhaps want to write to us ahead of our next Committee sitting?

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

As I said to the Committee, we are certainly considering how future changes to the indexation rate will impact on the reforms that we are making. We have been clear that we will respond to ensure that the financial sustainability of local government is not adversely affected as a result of the change to the indexation rate on the business rate multiplier. I hope that the clause stands part of the Bill.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Jackie Doyle-Price.)

Adjourned till Thursday 9 February at half-past Eleven o’clock.