Local Government Finance Bill

Bob Blackman Excerpts

Tuesday 10th January 2012 Commons Chamber

[Mr Pickles]

I feel a little stung because I have always been most helpful to the right hon. Gentleman.

Clause 1 deals with the local retention of the non-business rate and provides for the framework of the rate retention scheme in England by inserting a new schedule 7B into the Local Government Finance Act 1988. Clause 2, on the revenue support grant, gives effect to schedule 2, dealing with the amendment of provisions about revenue support grant in England. Clause 3, on additional grant, amends the 1988 Act to remove the provision for the Secretary of State to pay additional grant to local authorities in England. It also makes consequential amendments to the Local Government Finance Act 1992 and the Greater London Authority Act 1999. Clause 4, on the local government grant, amends section 100 of the 1999 Act so that from 1 April 2013 the Secretary of State may pay a general grant to the Greater London authority for a financial year but will not be required to do so. I think that that covers the point, although we could go through the entire Bill—there are only 16 clauses.

[Bob Blackman (Harrow East) (Con)]

I thank my right hon. Friend for giving way on this key issue. One of the key concerns for people raising additional business rates in the future will be that they gain from the benefit of that growth. I welcome that proposal. However, there is another problem. Will he confirm that if a major employer or site of employment closes down within the first two years of operation, the local authority will not lose the business rate income?

[Mr Pickles]

My hon. Friend raises an important point about the very nature of business rates. There is a high degree of buoyancy within the system and there can be sudden movements, particularly where firms move out and following claims for revaluation, which is why we have built into the system adjustments to iron out those things. We have suggested to local authorities— but it will be entirely a matter for them—that they pool their resources in order to get over those fluctuations.

I shall move from the incentive effect to another aspect of the Bill: the introduction of tax increment finance. This was recommended in the 2006 Barker report and promised in the 2009 pre-Budget report but never delivered by Labour. For the first time, councils will have the ability to borrow safely and sustainably against the anticipated increase in business rates. That will give them a new means by which to fund infrastructure, attract investors and secure jobs for local people.

We are determined that the transition to the new system should be effective, fair and workable. Over the summer, we consulted widely, and we heard loud and clear that small firms, charities and voluntary groups, which play such an important role in local life, should not face adverse changes to their bills. Local firms can rest assured that this is not a means of increasing their bills by stealth; rather it is a measure to help local businesses. The Bill also proposes a replacement for council tax benefit.

--- Later in debate ---

[Bob Blackman (Harrow East) (Con)]

I believe that the first three years of the coalition Government will be remembered for three things: constitutional reform, dealing with the economic mess bequeathed by the Labour party, and localism. The Localism Act 2011 gave local authorities, and also local people, power to determine what happens to them. However, we have a hideously fiendish system of local government finance to deal with the money that is spent on supplying services, and I am delighted that we are finally dealing with that.

I am not a stranger to the proposal that business rates should be retained by local authorities. I advanced it at the 1994 Conservative party conference in Bournemouth. Sadly I could not persuade the Conservative Government of the day to implement it, but I am delighted that we are taking the first steps towards ensuring that business rates raised locally are retained locally, because that is an ideal way of providing incentives for local decision-making.

Of course, retaining business rates at local level will require a complicated system, from which there will be gainers and losers. Let me give two examples relating to a local authority of which I was a member for some 24 years. When Wembley stadium was demolished and taken out of the business rate pool, £1 million a year was effectively taken out of the income from business rates. That could have a disproportionate effect. Had the new system been operating at the time, the local authority would have lost the money for five years—some £5 million of income. Therefore, if an employer goes out of business there must be some means of compensating the local authority to address any fall in income. The provision encouraging local authorities to promote business in their communities is important.

There has also been an issue in the suburbs. The last Labour Government encouraged—almost promoted—businesses closing down and sites being turned over to housing. As a result, in the suburbs business rate income has dropped, and it continues to fall. We must take account of that as we encourage local authorities to promote business in their areas.

Local authorities have almost done away with promoting economic development as a main means of operating. The Bill will transform that. Local authorities will need to become business-friendly and promote business and jobs in their local areas. That is clearly the right way to proceed.

Local authority finance has changed greatly. Housing benefit comprises almost one third of the money going through most local authorities’ books. Rightly, that will be taken away. The administrative costs of housing benefit were outrageous. However, I have concerns about the implementation of the council tax benefit in such a brief time scale and the local impact of that. Almost everyone who is in receipt of housing benefit receives council tax benefit as well. Now that housing benefit will be administered through the Department for Work and Pensions, it makes sense for council tax benefit to be similarly administered. The situation currently proposed is bizarre, to put it mildly.

Turning to tax increment financing schemes, many local authorities have huge historical debts, which were incurred as a result of the development of housing 30 or 40 years ago. Are we going to allow local authorities with such huge historical debts to borrow against future business rate income, and thereby incur yet further debt, in order to build more housing or undertake other projects within their local authority control? That would add hugely to their debt and to the amount of interest they are going to have to pay, and it will have a disproportionate effect on their total budgets. We must look at this, and make sure things are administered fairly and properly.

This Bill is a welcome step, but the devil is in the detail and I look forward to debating that as we take it through its various stages to becoming an Act.