Local Government Finance Bill

Mark made the following contribution to the Local Government Finance Bill which makes provision for non-domestic rating; grants to local authorities; and council tax.

Mark Field (Cities of London and Westminster) (Con): Does the right hon. Gentleman not recognise that the current system also has a whole lot of disincentives for local authorities built into it? Over years gone by, it has disincentivised many local authorities. It is perhaps all too easy to make comparisons between relatively affluent central London authorities and those in relatively long-term impoverished areas of the north of England, but the scheme that is being put in place is intended to challenge those disincentives. Although I accept that elements of it will not provide as much transparency as many of us would like, it is at least a step in the right direction.

John Healey: The extent to which it is a step in the right direction remains to be seen. There is an element of its direction that is right, which is the desire to see greater incentives for local councils to support the growth of their business base, and greater rewards for doing so. How those incentives will work is weak and potentially perverse, but the principle is nevertheless in the right direction. The potential practical problems that we are beginning to tease out are part of the debate that we need to have.

Mark Field: I am not entirely convinced that we are debating quite as revolutionary a change in local government finance as the right hon. Member for Wentworth and Dearne (John Healey) would have us believe. As he rightly says, there has been periodic centralisation of local government finance in the post-war period; this Bill is a step, but only a relatively small step, in a different direction.

I am concerned that some provisions will not provide the overall transparency that all of us desire for local government finance. The worry, as we all know, is that council leaders across the country who get and understand the system will then work it to the benefit of their own local authorities, while neighbouring authorities with similar sets of needs will not reap the same benefits. I believe that has been the case since time immemorial, and I suspect it is a problem that exists in any political system. However much we try, it is difficult to discount the articulacy of those who understand and work a system. As I say, I am not as convinced or as concerned as the right hon. Member for Wentworth and Dearne. I hope he will forgive me if I focus my comments on issues that have come from the lobbying of one of the two local authorities in my constituency, and in so far as we work here, we all have a vested interest in this authority—Westminster city council.

Mr Watts: Is not the real worry that unless a duty and responsibility are placed on Ministers to ensure that needs are assessed and catered for within the grant system, which under these proposals they will not be, the worst aspects of the hon. Gentleman’s worst fears might come to fruition?

Mark Field: There is a duty, although it will apply to potentially different sets of needs. I think one of the most destructive elements of local government has been the almost constant lobbying—whether it be for three-year settlements or the annual settlements of the past. Although we might return, well before 2022, to specific concerns about elements of need that have rightly been referred to, the idea of having a 10-year period is a positive route forward in providing certainty for local authorities. Westminster city council strongly supports the principle of allowing local authorities to retain a proportion of the business rates generated in their area—no one seriously suggests that either of my two local authorities should retain all their business rates, although there are common councilmen in the City of London, and members of Westminster city council, I am sure, who would rather like the idea, but even I would not suggest that that would necessarily be an entirely sensible way forward. As other Members have rightly pointed out, local authorities have played an increasingly important and integral role in supporting and growing businesses locally.

Bill Esterson: I am grateful to the hon. Gentleman for acknowledging that the most wealthy local authorities, in terms of business rates, could not possibly keep all those rates. What sensible balance can be struck to ensure that some local authorities do not struggle because of loss of income and that local authorities who are worried, for good reason, have their fears allayed?

Mark Field: I will be coming to that later, and will be asking the Minister to clarify the matter.

I would like the Minister to address a number of concerns. Why have the Government decided to cancel out any natural inflationary growth in the business rates programme? Why are increases in what might be described as revaluation growth not included in the Bill? A major revaluation has particularly affected London local authorities in recent years. Why does the Bill fail to provide for an adjustment in the growth calculation, in order to remove the negative effect of valuation appeals, which might become much more prevalent once the Bill is on the statute book? Under the proposed reforms, every local authority, as has been pointed out, will become a tariff—contributory—or top-up recipient authority, relative to its annual grant. In that regard, I take on board the comments of the right hon. Member for Wentworth and Dearne in relation to the responsibilities on fire authorities. One key question considered through the consultation was whether tariffs and top-ups should be uprated annually by the retail prices index. As the Minister knows, the Bill proposes that business rates will continue to be uprated annually, but taking the same approach to tariffs and top-ups would cancel out any natural inflationary growth that might otherwise have been expected by local authorities.

Why have the Government decided to cancel out natural inflationary growth in business rates? The clauses in the Bill that are subject to consideration today do not allow for revaluation growth, which is regrettable. Inevitably, all Members will use the examples closest to our hearts—our own local authority areas. Westminster city council’s total rateable value at the last five-year revaluation—18 months or so ago—rose by some 60%, but the proposed reforms would allow for none of that increase to count towards growth. In many ways, that is a disincentive to doing a lot of the hard work that went on in the second half of the last decade. As a result, local authorities would receive no benefit for enhancing their commercial environment or making their area a more attractive location for businesses. Having pacesetter authorities with business improvement districts in place at the outset was one of the most important elements of the previous Government’s work in that regard. Such authorities will be almost disincentivised and penalised under the proposals, which does not make much sense.

Given that rental and rateable value growth reflect the relative profitability from which central Government benefit through VAT, corporation tax and income tax, will the Minister clarify the reasons why increases in revaluation growth have not been included in the Bill? On physical growth, one key principle of the scheme, as I understand it, is to enable local authorities to benefit from new building and construction. However, as the Minister knows—although he represents a suburban London constituency—here in the capital, the high levels of rateable value reductions that are granted on appeal often wipe out the physical rateable value growth that has been achieved through new build. A great many appeals may be heard following revaluations, and as they are accepted the total rateable value in a billing may be reduced over time. Since those reductions result from errors made by central Government valuation officers, it seems unfair to penalise local authorities for such mis-valuations. We should also note the uncertainty that would be injected into the final settlement, given that one of the main aims of the scheme is to iron out such uncertainty.

Despite earlier assurances, the Government have failed to provide for any adjustment in the growth calculation to remove the negative effect of appeals, although—dare I say—given the difficult economic constraints that we are experiencing, I fear that there will be an exponential increase in the number of such appeals. It is estimated that Westminster city council has achieved an annual physical growth of about £30 million in rateable value per annum over the last five years, but failure to remove the negative effect of appeals will mean the loss of much of the benefit of that growth, and I suspect that we will hear similar stories from other Members. It is also possible that a significant number of appeals will be processed in 2013-14 and 2014-15 once the valuation office has completed its appeals programme for the 2010 revaluation, and that too could have a significant impact on the final settlement. I believe that the only option for local authorities will be to achieve growth through the adjustment of business rate allowances. The only allowances that authorities are currently permitted to control are discretionary reliefs for charities and non-profit-making bodies, and hardship relief.

Graham Jones: When authorities suffer a significant loss in business rate revenue, there will surely be a downward pressure on what the Prime Minister would describe as the big society, in which rate relief is given to charities, sports clubs and all sorts of other organisations that do social good. In the poorer, more deprived areas that will lose out under the new system, will not those organisations will lose out as well?

Mark Field: The hon. Gentleman has almost taken the words out of my mouth. Given the Government’s commitment to the big society and to empowering the organisations about which he has expressed concern, removing discretionary awards would be controversial, and—given that they account for only a small proportion of the business rates that are collected—of little use. I hope that we can be given some clarification about why the Bill fails to provide for any adjustment in the growth calculation to remove the negative effect on valuation appeals.

I do not wish to sound too negative myself. Obviously we are trying to make the legislation better, and I think that the principle of allowing local authorities to retain a greater proportion of the business rates that they generate in their areas is a positive step. Nevertheless, the detailed proposals relating to RPI increases, revaluation and physical growth fail to offer the incentives for growth in high-yield areas for which we had all hoped, and I fear that they may result in excessive penalties for such areas. I realise that Opposition Members may view the issue from the point of view of relatively low-yield areas, but I think there is a risk that high-yield areas will not receive benefits for themselves and that, as a consequence, the Exchequer will not receive them either.

Encouraging economic growth at any level is critical to the national economy. Local authorities are uniquely placed to provide incentives for growth in their areas, recognising what will work even in specific parts of a single authority area—I observe a great variance within the 6.5 square miles of my own constituency—and that creates a bedrock for the national economy. I hope that serious scrutiny will be given to the reasons for the Government’s proposals, in the light of some of their potentially negative implications for areas that would be expected to generate the most significant growth.

Let me take up the point made by the hon. Member for Denton and Reddish (Andrew Gwynne) about pooling. We are living in a climate in which it will become the norm. I do not wish to pre-empt discussion of a subject that I am sure will be subject to much criticism and debate on the Floor of the House in the years to come, but I suspect that there will also be a reorganisation of local government. I foresee that in particular for London. It currently has 32 local authorities as well as the City of London, and that situation may well be subject to radical reform in the near future.

I hope the Minister gives serious thought to encouraging the pooling of resources. As he will know, in my area the tri-borough arrangements among the City of Westminster, Kensington and Chelsea, and Hammersmith and Fulham have worked well in a number of respect, and it is to be hoped that that continues.

It is in the interests of central Government for there to be pooling, but I fear that the proposals in paragraph 9 of schedule 1 will serve to remove any form of incentive for it. I accept that there will be some additional costs, but pooling is the way forward for many local authorities and the Government should encourage it in this Bill.

I am broadly in favour of the proposals, but I hope the Minister gives serious consideration to the points I have made.

Helen Jones: It is a pleasure to follow the hon. Member for Cities of London and Westminster (Mark Field), who always has something interesting to say even though I might disagree with him.

Mark Field: The local government finance system may not be quite as complicated as the Schleswig-Holstein question, but is it not a concern that it is none the less very difficult to find anyone who could seriously be said to be independent in this regard? Although I can understand some of the concerns outlined by the hon. Member for St Helens North (Mr Watts), having an opportunity to discuss this on the Floor of the House means that more Members can have their say, and that must be a positive step forward.

Helen Jones: The hon. Gentleman makes a fair point, although I do not believe it is impossible to find independent people in the sector and of course the Government

Mark Field: I accept that the straitened financial times make things very difficult, but do I take from what my hon. Friend has said that there is a longer-term aspiration, if not necessarily a fully fledged commitment at this stage, that we should look to allow local authorities to raise the council tax in future to ensure that there is a little more of a balance; that some more of the money that they are expending comes from local residents? I accept that this is not a short-term measure given the financial constraints that we are under, and I understand why the Government have tried to provide such incentives to freeze the council tax at the moment, but in the longer term, the rebalancing to which he refers should ensure that local government has other full sources of income possibly to rely upon.

Robert Neill: I understand my hon. Friend’s point. He refers to the council tax, which is a separate part of the income stream from the business rates. Of course, we have ourselves removed capping and substituted the ability, even under current circumstances, for a local authority to go to its voters by way of a referendum, which is a move in the direction of giving greater flexibility. It is the authority’s local call. In relation to the business rates element of its income, I restate that it is our desire to ensure that there is flexibility for the future. This is not intended to be a system that lasts for two or three years. I am in favour of multiple-year funding settlements, which I think we all agree on, but our system is intended to last for a much longer period. I hope that that reassures hon. Members.