Caroline Flint
Main Page: Caroline Flint (Labour - Don Valley)Local Government Finance
Caroline Flint Excerpts
The Secretary of State for Communities and Local Government (Mr Eric Pickles)
With permission, Mr Speaker, I should like to update the House on the Government’s review of local government finance.
The past year has seen the beginning of a long-awaited and much needed shift in power—from national to local, and from Whitehall to the town hall—but if localism is to reach its potential, new legal freedoms must be matched by freedom over finance. That, of course, is not a new idea. Reviews, from Layfield in the 1970s and onwards, have emphasised that increasing local financial control is the key to strengthening local democracy.
Strangely, the previous Government did nothing to reform the system, despite a local government finance Green Paper, a local government White Paper, the balance of funding report, and, of course, the Lyons inquiry. Amazingly, they did not even bother to issue a formal response to Lyons’s 400-page report.
By contrast, the coalition Government are delivering radical change. Over the past year, we have begun the phasing out of ring-fencing, freed up £2.1 billion from restrictions and simplified more than 90 separate funding streams to fewer than 10. That is real progress, but today we are committed to going further still: to restoring councils’ financial autonomy while ensuring a fair deal for all communities, whether in the north or in the south.
In the first phase of our review of local government resources, we have focused on local retention of business rates. As the House will know, the Government have already taken action on business rates. We have introduced a more generous small business rate relief scheme, we are making it easier to get that relief without filling in paperwork, and we have scrapped the unfair and regressive ports tax.
We are now looking at what business rates mean to local councils. Councils in England collect some £19 billion in business rates each year. No sooner does the cash come in than it is gathered up by the Treasury and then redistributed to councils according to a complex formula. That approach has major shortcomings: it denies councils control over locally raised resources; it deprives them of the certainty they need to plan their finances for the longer term; and it creates a disconnection between the success of local businesses and the state of a council’s finances.
Surely it is common sense for the system to encourage councils to boost local jobs and growth. Radical change is needed, and councils themselves agree. In a major step for transparency, my Department is today publishing every representation made in the recent local government financial settlement. There is a common theme. Councils believe that the current system is complex and opaque. They must talk down their successes and talk up their difficulties in order to secure the best possible deal from Whitehall.
To address that, mere tinkering—adjusting the formula here, amending the area cost adjustment there—will not be enough. This Government are determined to repatriate the business rates. Today, I am publishing a consultation outlining our proposals. No more will proud cities or historic counties be forced to come to the national Government with a begging bowl. Councils will have a greater control over cash, helping them to plan for the longer term. Tax increment financing will let them borrow against anticipated increases in rates, giving them a new way to invest in infrastructure, from transport projects to regenerating town centres. Councils should see a direct link between the success of local businesses and their own cash flow. That will create the right incentives for them to work closely with local businesses.
I am determined that the transition to a new scheme will be both responsible and fair. The Government’s overriding priority continues to be deficit reduction. In the spending review, we set out the level of resources available for local government for the next four years. In the interests of financial stability, for the first two years of the retention scheme, we will continue to stick to those spending plans, but we will allow local authorities to benefit from any growth in business rates above forecast levels. Beyond this spending review period, we will look to align more closely local authority functions and total business rate income.
It is also of paramount importance to ensure that our proposals on local government finance are balanced, fair and equitable, creating the right incentives for all areas to grow while protecting the most vulnerable. We propose a number of measures to safeguard them and to achieve that. First, poorer places will share the increase in growth with more prosperous areas. Those places with the greatest dependency should, and will, continue to receive support, while being allowed to keep the products of enterprise, and those places that raise the greatest sums through business rates should expect to make a contribution. A new system of tariffs and top-ups will ensure that we start from a fair base. As my right hon. Friend the Deputy Prime Minister told the Local Government Association last month, we will ensure that no one will be worse off when the new system is introduced than they would have been under the old system.
Secondly, as the House will well know, some areas have strong natural economic advantages, such as high-value industries or concentrations of skilled workers. There will be no cap on the amount of business growth from which such councils can benefit. A council will be better off as a result of growth, but if an area benefits disproportionately from a growth in business rates, we propose to introduce a special local levy to capture a share of that benefit. The money raised should be used in the first instance to fund a safety net, which would protect authorities that experience exceptional shocks to their business rate take.
Thirdly, our proposals include the option of resetting the whole system. If councils no longer had enough resources to meet local needs, the Government could recalculate the level of tariffs and top-ups across the whole system.
Fourthly, support for mandatory and discretionary rate relief will continue. Rate relief to the needy will be unaffected. National discounts and rate relief will continue to be supported, meaning no adverse change for such groups as charities, amateur sports clubs, voluntary groups, those in hardship and those who are eligible for rural or small firms relief.
Finally, we have reflected carefully on what our new system means to business. Businesses—the creators of local jobs and wealth—need stability in this process. They need certainty to plan for the long term, so let me spell this out in no uncertain terms: local firms will see no difference in the way in which they pay tax, or the way in which the tax is set, as a result of these changes.
I am placing in the Library a plain English guide so that hon. Members’ constituents can understand what our proposals will mean for them. We intend that business rates should be repatriated in 2013. We will bring forward a local government finance Bill to give our proposals legal effect. The publication of this consultation begins a debate that I hope will be wide-ranging and constructive. I want to work with all local authorities, representative groups and political parties to build a consensus for lasting change. That consensus will be built on putting power back in the hands of local councils and communities; supporting local jobs and local firms; and creating the conditions for renewed, sustainable economic growth. I commend the statement to the House.
Caroline Flint (Don Valley) (Lab)
I thank the Secretary of State for advance sight of the statement. Obviously, we will look closely at the detail of the Government’s announcement today, because on many policy areas under this Government the devil is in the detail.
Let me make it clear at the outset that we would back a funding system for local authorities that supports jobs and growth and encourages enterprise. In government, we introduced measures such as the small business rate relief to support small businesses and, in consideration of the Localism Bill, we are pushing the Government to go further in devolving powers to cities and councils to enable them to drive economic development. Our amendment is due to be debated in the other place on Wednesday, and I hope that the Secretary of State will confirm today that he will tell his colleagues to support our proposals.
We have been clear that any funding system for local government must be fair. It has to ensure that every authority has the resources it needs to meet the needs of its communities, but today I am afraid that—plain English or not—the Government have failed to spell that out. How does the Secretary of State plan to localise business rates without taking funding from the pockets of our poorest communities? The Secretary of State may just want to talk about year one, but we want to talk about year two and year three, and all the years after that. What will the funding system look like then? And will the Secretary of State be able to guarantee today that no council will be worse off in five years’ time as a result of the reforms that he has announced this afternoon?
It is telling that whenever the Government have been challenged on the long-term effects of their reforms to business rates, they have said that it is up to local councils. What that really means is that, after the first year, the Government are washing their hands of the problem—cutting funding and leaving councils to fend for themselves. We all know how incredibly important this is to local communities up and down the country because, as the Secretary of State knows, business rates make up 76% of the formula grant. Vague, empty assurances just will not cut it. No sleight of hand, temporary transition grants or safety nets can hide the consequences of these reforms. If the wealthiest councils are not giving up the rate they collect locally for redistribution, where will funding for those who rely on redistribution to survive come from?
The Secretary of State referred, very briefly, to the fact that areas that raise the greatest sums through business rates will still, at least in year one, make some sort of contribution to less well-off areas, but a report in this morning’s Times said that councils with large yields would only be required to contribute to a safety net in the form of a regional pot. Will the Secretary of State confirm whether the redistribution that takes place in year one—or beyond—will be on a national or regional basis? If it is on a regional basis, and given the size of the business rates yield in Westminster and the City of London alone, many areas outside London and the south-east will be considerably worse off.
Until the Secretary of State clarifies those points, we will continue to press him on what these reforms might mean. We have heard his assurances before. He assured us that the finance settlement was fair. Then we found out that while places such as Richmond and Surrey Heath were losing less than £10 a head, areas such as Hackney and Liverpool, serving some of the most deprived communities in our country, were losing nearly twenty times as much. He assured us that the cuts to local government funding did not have to mean cuts to services, but even his own councillors do not believe that one. The cuts that we are seeing now, right across the country—to home helps, care services, street cleaning and, yes, to bin collections too—are the consequences of his cuts.
Today, the Secretary of State still seems to expect us to be satisfied by his assurances—to believe that no council will be worse off. If we do not believe what he says, the Deputy Prime Minister told the same Local Government Association conference:
“The new system will start on a level playing field. How far you progress from there is entirely up to you.”
That was backed up by comments by the Under-Secretary of State for Communities and Local Government, the hon. Member for Hazel Grove (Andrew Stunell) in response to an Adjournment debate last week. I paraphrase slightly, but he basically said, in answer to a concerned question about what would happen after year one, “You’ll be okay for the first year, but I really couldn’t specify beyond that.” Are those the sort of assurances to give us hope that there will be fair redistribution in the future for those communities in the greatest need?
This proposal just does not add up. The amount of funding going to local authorities over the next four years has already been laid out in the comprehensive spending review. Unless the Secretary of State wants to announce today that he is planning to revisit the level of grant he intends to provide to local authorities, will he confirm that, with a fixed pot of money for any council to gain, other councils must lose? If not, will the Secretary of State tell us where the additional revenue will come from? We know which areas will lose out as a result of these changes. It will be the poorest areas, with the most deprived communities and smallest business base, who will be hit with a triple whammy. First, they saw their area-based grants cut and then they had to deal with the finance settlement, which singled them out for the heaviest cuts; and now, to add insult to injury, the Government want to cut their funding to boost the coffers of the better-off councils by localising business rates in a way that is unfair and that will benefit the best-off at the expense of the most deprived.
However, it will not just be our poorest communities that lose out. Many rural areas and seaside towns—from Southend-on-Sea to Blackpool; in Devon, Somerset and Northumberland—and even Harrow and Enfield in Greater London and Redditch in the midlands will see a loss from these changes.
In government, we were examining the case for tax increment financing, and we will look closely at the details of the Government’s announcement, but however much the Government spin it, it will not be lost on local authorities that the introduction of tax increment financing comes after this Government have already cut local authority capital funding by 45%, and when they have raised the interest rate at which local authorities can borrow. The Government may couch these reforms in the language of localism, but today’s announcement betrays their real intent. Cutting funding to areas with the highest need does not free councils from central control or empower them: it stops them from doing the things their communities need of them.
Yes, we want a funding system that supports jobs and encourages enterprise, but not every area has the same ability to attract investment and new businesses. Not everywhere can be Westminster or the City of London. We will look to support incentives to boost enterprise and put councils and communities in control, but fairness must be at the heart of the system.
Several hon. Members