Robert Neill
Main Page: Robert Neill (Conservative - Bromley and Chislehurst)(12 years, 3 months ago)
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The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)
I beg to move amendment 3, page 16, line 29, at end insert—
‘(6A) Where the original calculations did not show that a relevant authority was to make a payment to the Secretary of State, but the revised calculations show that the authority is to make a payment to the Secretary of State—
(a) the authority must make that payment to the Secretary of State, and
(b) the authority must make a payment to the Secretary of State of an amount equal to the amount of the payment shown by the original calculations as falling to be made by the Secretary of State to the authority.’.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss Government amendments 4 to 16.
Robert Neill
It is a pleasure to be back here under your chairmanship, Mr Hoyle, dealing with the next part of the Bill. The amendments make changes to paragraphs 12 and 15 of the schedule and some consequential changes to schedule 3. To make sense of how they operate, it is sensible to look at the scheme of how part 5 works as a whole, which I shall do as briefly as I can.
In earlier debates on the Bill, the Government have made it clear that we have always accepted there would be a need for some redistribution of business rates from resource-rich to resource-poor authorities. We intend that the redistribution should be done by way of tariffs and top-ups, which have been mentioned in earlier debates. Those will be set at a level that ensures that no authority will be worse off on day one of the scheme than they would have been under formula grant. That is a principle that we have already established. So tariffs and top-ups will be set on day one so that no authority will be worse off. Thereafter, the intention is that tariffs and top-ups will be index-linked to the retail prices index so that the value of protection provided to top-up authorities is maintained in real terms. Under paragraph 10, the basis on which tariffs and top-ups will be calculated will be set out each year in the local government finance report, which the Secretary of State must lay before the House, and will thus be subject to the same scrutiny as the report.
Once the local government finance report is approved by the House—the normal procedure—paragraph 11 requires the Secretary of State to make the necessary calculation of the tariffs and top-ups to be paid, or received by each authority, on the basis approved in the report. After the calculations have been notified to the authorities, paragraph 12 requires them and the Secretary of State to make payments in line with them.
Part 5 of the schedule also provides, purely on a precautionary basis, that the Secretary of State may at any time up to 12 months after the year to which the local government finance report relates make a further set of calculations, but with the proviso that they are made on the same basis as set out in the report. That will make sure that in the unlikely event that we later discover a mistake in the original calculations we can put it right.
Lyn Brown (West Ham) (Lab)
I am listening to the hon. Gentleman with interest. Is it not true that as a result of the financial calculations that will be made under the Bill, the 10% most deprived areas will lose four times as much as the 10% best-off areas?
Robert Neill
I do not accept the hon. Lady’s proposition. The whole point is that we are not dealing with the individual circumstances of authorities; that will be done in the report. The provisions set out the methodology. That is the important thing. It is worth bearing in mind that under the existing formula grant arrangements, there is provision that in exceptional circumstances the Secretary of State can make an amending report. In effect, these provisions mirror the position for dealing with the situation now; we are operating with a baseline and top-ups and tariffs, with the protection that they are uprated in line with inflation.
Paragraph 13 makes further provision to allow us to put right a mistake in the basis for calculation set out in the original report, but it is important to stress that if we did so we would again need to seek the approval of the House of Commons. The principle exists in the current system, although it has not had to be used; it is a fail-safe arrangement.
Mr Robert Syms (Poole) (Con)
Is it the Government’s intention that the tariff will always equal the top-up—that no money will be top-sliced by the Department for Communities and Local Government—or will a reserve be kept?
Robert Neill
We will talk later about what is described as the central share, which is the proportion that may, as necessary, be retained by central Government. That is to ensure that at all times the settlement fits into the envelope of the control totals, but even so we have indicated that anything allocated under the central share will be returned to local government through other grants. Just as at present local authorities receive grants that are outside the formula grant scheme, so too can money be recycled to local government in the same way.
Mr Kevan Jones (North Durham) (Lab)
If the answer to the question put by the hon. Member for Poole (Mr Syms) is that, yes, the Government will retain that money, are they not, by that mechanism, substituting for central Government funding by making sure that local government pays for all grants that go to local authorities? That is not the case at the moment.
Robert Neill
On the first part of the hon. Gentleman’s proposition, the Government have never made any secret of the fact that there will be a central share; we have always indicated that it would be necessary for the system to operate within the control totals of the spending review. On the second part, the central share can be set and adjusted from time to time. We have made it clear that we intend to look, as we go forward, at the macro-economic situation, which will be reflected in the control totals, and the ability to seek to align more closely the responsibilities of local authorities with funding availability through the business rates. Put it this way: it would be a bit previous to come to a conclusion at this moment about what precisely would happen to any individual grant stream.
Mr Jones
Is the Minister saying that in future, grants that currently come from central Government taxation and revenue will be paid for by local government? That is basically shifting the burden to local businesses, rather than taking the money from the central taxpayers’ pot.
Robert Neill
The danger in the hon. Gentleman’s formulation is in assuming that that would shift all funding in that way, and that is not correct. What we have said is that we will have the option to make an adjustment to keep the grant within the control totals, and to ensure that money raised by business rates is returned to local government, in a way that is consistent with the scheme in the Local Government Finance Act 1988. That is not different, because as the hon. Gentleman, with his experience, will know, quite a number of funding streams are paid to local authorities, outside formula grant. I do not accept that it follows that all of them have to be added in. What we have said is that we will seek to align more closely the grants with the responsibilities.
Mr George Howarth (Knowsley) (Lab)
I am grateful to the Minister for giving way; he has been generous. He may cover this later, but the top-ups and tariffs updated by the retail prices index would mean that, without the protection of safety nets, Knowsley, which I have the honour to represent, would have a four-year cash growth of 21.9%; by comparison, for the City of London, it would be 139.6%. Will he explain how the measures that he is about to announce would ameliorate the problem?
Robert Neill
In a later passage of the schedule, we deal with the operation of the set-aside and the safety net, and that will deal with the issue of recouping what is decided to be disproportionate growth, and how that will work in principle. Of course, as this is a framework Bill, it does not set out the impact on any individual local authority; it sets out the methodology that will be applied, and I will happily deal with that at the appropriate time.
I can tell the right hon. Gentleman that, as we may have indicated earlier, over the spending review period that we have looked at, Knowsley’s non-domestic rate increase was 8.4%, which is significantly above the national average. Of course, I accept that local authorities start with different financial circumstances, and we are reflecting that in the baseline, so that no one is worse off, but we are right to point out that some local authorities that certainly have a number of demands on their resources are capable, as we have seen, of a growth in business rate income that is above the national average.
In a nutshell, the Government amendments deal with a set of revisions that we do not anticipate having to use, but which it is desirable to have, as a fail-safe device to correct any mistake or erroneous calculation. That is the background. One further point should be made: it follows that where we have occasion to use the provisions to recalculate tariffs and top-ups, or to make an amending report, obviously the sums due to local authorities would potentially differ from those of which they were originally notified. It is therefore right to point out that the provisions in paragraph 12(5) and 12(7) and in paragraph 15(3) and 15(5) ensure that the sums due and paid by an authority as a result of the original calculations can be compared with the result of the recalculation or the amending report, and that adjusting payments can be made to reflect the difference.
Mr Syms
I fully support the Government amendments, because what they propose is sensible when we are moving towards a new system. We are talking about some very large figures, and it takes only a small change in one figure to throw the others out. It is important that local authority finance officers have a clear idea of where they are going with this new system. If there is a recalculation, which we do not expect, will it be perfectly obvious in the information supplied to local authorities? Local authorities will have to set a legal budget, and they will do so based on figures supplied by the Government. If those figures change a little, will the system be sufficiently transparent for local authority treasurers to understand where there has been some adjustment? Otherwise, if it is totally out of the blue and they cannot see the rationale, that will cause more problems than we are solving.
Robert Neill
I take my hon. Friend’s sensible point. That is why it will be done, if it is needed, by making a report to the House so that there is proper scrutiny. Local authorities would of course be notified and the basis of any change set out. We would also seek to give any local authority affected appropriate warning informally and through the formal channels here, and there would of course be scope for Members who represent constituencies affected to raise the matter in the House and with Ministers.
I am grateful that the hon. Member for Warrington North (Helen Jones) deigns to support the amendments but sorry that, in doing so, she has managed to raise churlishness to a new art form, even by her standards. I simply point out that I can scarcely remember a Government Bill in the previous Parliament that did not come with dozens of drafting amendments as it progressed. These things happen, as she knows full well. I am a little surprised and she does herself an injustice by making so needless a point.
Amendment 3 agreed to.
Amendments made: 4, page 16, line 40, at end insert—
‘(8A) Where the original calculations did not show that the Secretary of State was to make a payment to a relevant authority, but the revised calculations show that the Secretary of State is to make a payment to the authority—
(a) the Secretary of State must make that payment to the authority, and
(b) the Secretary of State must make a payment to the authority of an amount equal to the amount of the payment shown by the original calculations as falling to be made by the authority to the Secretary of State.’.
Amendment 5, page 17, line 10, after ‘(6)’ insert ‘or (6A)’.
Amendment 6, page 17, line 18, after ‘(8)’ insert ‘or (8A)’.
Amendment 7, page 19, line 8, at end insert—
‘(4A) Where the relevant previous calculations did not show that a relevant authority was to make a payment to the Secretary of State, but the revised calculations show that the authority is to make a payment to the Secretary of State—
(a) the authority must make that payment to the Secretary of State, and
(b) the authority must make a payment to the Secretary of State of an amount equal to the amount of the payment shown by the relevant previous calculations as falling to be made by the Secretary of State to the authority.’.
Amendment 8, page 19, line 19, at end insert—
‘(6A) Where the relevant previous calculations did not show that the Secretary of State was to make a payment to a relevant authority, but the revised calculations show that the Secretary of State is to make a payment to the authority—
(a) the Secretary of State must make that payment to the authority, and
(b) the Secretary of State must make a payment to the authority of an amount equal to the amount of the payment shown by the relevant previous calculations as falling to be made by the authority to the Secretary of State.’.—(Robert Neill.)
Helen Jones
I beg to move amendment 27, page 21, line 12, leave out ‘may’ and insert ‘must’.
Annette Brooke
I think my hon. Friend is hitting on the same issue that I have in mind—the respective time periods. It is important that we have clarity on that and I thought I had, but that was before I listened to the speeches this afternoon. We know that we are starting off firmly—councils know how much they are getting in the first settlement—but we need to know what will happen when the new system really clicks in.
Robert Neill
This has been an interesting and useful debate. The right hon. Member for Knowsley (Mr Howarth) and I did a crash course in regression analysis at probably about the same time, when we were performing similar roles in local government, and I sympathise with him. He is quite right: the analogy with the Schleswig-Holstein question is frequently raised, sometimes with some justice, as I think pretty much everyone in the Chamber knows. I can happily inform him that I am not aware of any former local government Minister being driven mad as a consequence. It has sometimes been suggested that some former Ministers have been driven to tear their hair out, although I am perhaps not the best person in the Chamber to comment on that either.
This issue has certainly exercised a number of right hon. and hon. Members in a most constructive way. It has also caused a number of us to be engaged in quite a lot of detailed debate, because, by its nature, whatever system we use—the existing system, the previous system, when we had relative needs assessments, standard spending assessments and so on, or the future system—there will always be quite a lot of technical detail. A lot of the detail will inevitably be in regulations of one kind or another.
Let me try to reassure hon. Members on a number of points. The provisions in the Bill set out the scope for regulations to be made. I say to the hon. Member for Warrington North (Helen Jones) that the phrasing of her amendment 27 would create a duty to have regulations, rather than a permission. I hope she will not pursue that point at this stage, because I cannot conceive—it is certainly not my intention—of the Secretary of State proceeding other than by way of laying regulations. It would be inappropriate to fetter the Secretary of State’s discretion. I can assure her that our intention is that regulations will be laid in the ordinary course of the scheme’s operations.
Secondly, let me assure hon. Members that we intend to consult local government and other interested parties on the regulations in a timely fashion. The hon. Member for Warrington North knows from her experience in local government that, at present, the Secretary of State lays the finance report and there is a provisional settlement and scope for representations. I hope I can reassure hon. Members that it is certainly our intention that the system will include the ability to make representations. It is by no means unusual for regulations to be introduced during a Bill’s passage through Parliament. I think that that happened during every local government Bill with which I was involved in the previous Parliament. Of course there will be consultation on the drawing up of the regulations to set up the scheme, as well as an opportunity for representations to be made during the course of the Bill.
Helen Jones
I am grateful to the Minister for clarifying the Government’s intention to proceed via regulation, but it would be helpful if he explained exactly why he thinks it would be wrong to fetter the Secretary of State’s discretion, because that leads us to think that the Secretary of State might want to proceed in another way. Will he assure us that that is not the case?
Robert Neill
It is certainly not our intention that that would be the case in the ordinary course of events. I think that the hon. Lady is unduly suspicious, perhaps as a result of her spending a long time in the Government Whips Office during the previous Parliament; I can understand how that could happen. It is conceivable that certain urgent circumstances might arise in which we might wish to proceed differently, but it is not our intention to set out these measures in anything other than a transparent process. I want to assure hon. Members of our good faith in that regard.
I also want to make it clear that amendments 27 and 40 are unnecessary and would narrow the options available to the Secretary of State in drafting regulations about the calculation of levy payments. We believe that it is right and proper that the measures should be set out in regulation rather than in the Bill, and I restate my assurance that we will work with local government on the content of the Bill. Any regulations will be subject to the affirmative resolution procedure in the House, and therefore subject to maximum scrutiny. At this stage, however, I do not want to limit us before we consult local government on the design of the scheme. I think that that is reasonable.
Mr Raynsford
What the Minister has just said is really unacceptable. He says that he does not want to limit the options available to the Government before they reach a decision. He knows that this Committee is here to scrutinise the Government, but he is proposing a doctrine whereby the Government should be free to do whatever they want and not be subject to parliamentary scrutiny. Will he now please answer the question we have already put to him? What are the principles that will guide the levy system that he is giving himself powers under this clause to operate? On what principles will it operate?
Robert Neill
The right hon. Gentleman really should not work himself up into a state of needless indignation, particularly in the light of his history as one of the most centralising Ministers this House has ever seen. I am not going to take any more lessons from him on this, given his record, anxious though he is to remind us of it at every opportunity.
It is our intention that the system will operate in such a way that, if areas such as that of the right hon. Member for Knowsley or the area around the Alcan plant in Northumberland should suffer significant loss of business rate revenue through the closure of a firm, for example, there would be a safety net to protect local authorities. That would come from the proceeds of a levy on disproportionate growth. That is a perfectly simple and comprehensible principle, and I think that the right hon. Member for Greenwich and Woolwich (Mr Raynsford) knows that.
Robert Neill
I am sorry to say to the hon. Gentleman that he is incorrect. As I said a moment ago, we intend to ensure that the regulations are scrutinised under the affirmative resolution procedure, so there will be that precise scrutiny of the detail. There is more than one way of calculating what is disproportionate in such circumstances, so it is right that there is the opportunity to consult local government on how best to perform the calculations before coming back with proposals, which Members will certainly have every opportunity to scrutinise.
Mark Field
Given the context of the discussions that have taken place, I think it would help the Committee if we had at least some idea of what the Minister thinks “disproportionate” means. Members on both sides of the Committee have given a number of examples of what they might regard as disproportionate. Would the building of a new town that doubled the population of an area count as disproportionate? Would the opening of a nuclear power station count? Given that we are trying to scrutinise the Bill, it would be helpful to have some idea of what the Minister regards as disproportionate and about the time context. One benefit, as I see it, of this Bill is that it puts a 10-year cycle in place, so presumably things happening over the course of a single year would be taken in context and would not fall foul of the “disproportionate” definition—or perhaps they would. It is in the Minister’s hands.
Robert Neill
I understand my hon. Friend’s point. I will not go down the route of giving such a specific example, but I would say that it is worth bearing it in mind that we are considering disproportionate growth in business rate income, so one does not necessarily have to consider a particular development in itself, but the impact overall of the business rates income. I can assure him of that.
As regards my hon. Friend’s point and that made by my hon. Friend the Member for Poole (Mr Syms) on a related topic, paragraphs 27 and 28 of schedule 1, as I recall, make provision for the calculation of the levy account and set-aside account to be made annually, but there is also provision, after the first year, of course, for a balance to be carried over. That can be done over a period of time and there is therefore an element of an opportunity—and it would be appropriate—to build in a measure of insurance over that period so that moneys could be collected and held in reserve to deal with potential set-asides in different years. I hope my hon. Friends’ points are answered.
Mr Syms
I think we are starting to learn a little bit more about this now. If there is a balance and it builds up—that is, if there is income from those that are gaining rather more than those that are not—will there be a redistribution at some point when there is a reset to local government?
Robert Neill
I envisage that the whole situation would be reconsidered when a reset was reached. The balance would itself have to be the subject of a report by the Secretary of State and would therefore have to be subject to scrutiny. I can assure the hon. Gentleman that it is not intended that the Secretary of State should somehow hoard the balance or squirrel it away, other than for the purposes of making safety net payments. That is why there are separate accounts.
Mr David Ward (Bradford East) (LD)
I am less concerned about a surplus on the account, as amendments we will consider later cover what should happen to that. What will happen if there is a deficit on the account, which has accumulated over a series of years of general economic decline?
Robert Neill
Inevitably, one would have to consider revisiting the levy. As it is reported annually, the objective gives us the chance to review the balance of the accounts to ensure that there is a sensible equilibrium. Let us hope that we do not reach such a situation, but my hon. Friend’s point is fair. There is provision for that flexibility.
Robert Neill
Perhaps I might make just a little more progress.
The whole point of our concern is the need to give an incentive at all times for local authorities. We therefore do not envisage ever reaching the circumstances in which the levy is of such a kind that over time it destroys the incentive. That is why there is the aspiration to have 10 years between the resets to allow the incentive to work through. We will consult local government and then place our basis before the House for scrutiny, and I assure hon. Members that this is not intended to choke off the incentive for any local authority to go for growth. Equally, I want to assure authorities that have concerns, such as Knowsley, that there will be a proper and viable safety net that can be kept in balance to give them the necessary protections.
On the point made by my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke), the provisions in the schedule essentially mean that there will be a report annually. There will still be the annual financial report—that is why there will still be opportunities for representations to be made—and we will consult on the regulations well in advance of their coming into force in 2013-14. As far as possible, we intend to give at least the same degree of notice as local authorities currently have. As my hon. Friend will know, consultation usually starts around the summer and then there is the period when the provisional settlement is announced, generally in December and thereafter.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
Order. I am sorry Minister, but—
The Second Deputy Chairman
Good. I would like to hear you as well as see you.
Robert Neill
I am sorry. I was distracted momentarily by my hon. Friend the Member for Mid Dorset and North Poole. You can understand how I am torn in those circumstances. I hope you will forgive me.
The Second Deputy Chairman
Perhaps the hon. Gentleman could move closer to the microphone and then we could all hear his excellent explanation.
Helen Jones
The Minister is being generous in giving way. Will he answer the point I put to him earlier? If an authority loses a major employer before the determination of its rates baseline and it then somehow replaces that employer and its income goes up, will that be counted as a disproportionate gain?
Robert Neill
First, it will depend on whether it was in a top-up or tariff scenario. Secondly, precisely because we are looking at two things, the normal arrangement will be that the calculation and the report are made annually. However, in the detail of the regulations there is provision, which we may not need to use, to consider in-year payment if something were to create some catastrophic loss that could not be made up. I am sure the hon. Lady will concede that these are precisely the details that we ought to be talking to local authority professionals about—particularly how best to achieve what we want.
Mr Kevan Jones
May I pick up on what the hon. Member for Mid Dorset and North Poole (Annette Brooke) said? In terms of an employer leaving an area—let me take the example that my right hon. Friend the Member for Knowsley (Mr Howarth) used and suppose that an employer left after the determination—will there be a mechanism by which the Secretary of State could compensate the authority for that loss in-year? If not, it will be very difficult for local authorities to set a legal budget.
Robert Neill
As I recall, when we get to paragraph 26 we are looking at that ability, but let me double-check the exact paragraph. One has to look both at this part and at the part that deals with the safety net. In paragraph 26 of the schedule, there are regulations that can be made about payments on account. We envisage circumstances in which the Secretary of State may make an in-year calculation in response to a request, and regulations can be drawn up to deal with that eventuality, which is a fair one. I hope that puts the hon. Gentleman’s mind at rest.
Mr George Howarth
This might make me a bit unpopular on the Opposition Benches, but I think it is perfectly understandable that the Minister might want to deal with the detail of this, after consultation with local government, through regulations that will go before the House. That is not unreasonable, but it would help many of us if rather than giving the detail of the regulations he gave some indication, either now or later in the afternoon, of the principles he would like to adopt in the regulations and on which they would be based.
Robert Neill
I think I can help the right hon. Gentleman and I note the very constructive way in which he makes his point. There are two things that one has to distinguish, the first of which relates to the period of setting the baseline regarding tariffs and top-ups, which are adjusted by inflation. The idea of the levy and the set-aside is to deal either with a level of growth well beyond that rate or with a loss of business rates well beyond it. The principle of the system is to make sure that beyond the tariff and the top-up a sufficient amount of growth can always come through, for those who achieve growth, so there is an incentive effect. It would clearly be wrong to define “disproportionate” in such a way as to cream off any prospect of growth. That is why it is sensible to consult local government on quantums and the methodology for achieving that.
Equally, we can envisage circumstances, although we hope they will not occur, in which local authorities suffer significant losses in their rate base, which are greater than would occur with the normal volatility of business rate fluctuations and which they can do nothing about. That is what is suggested might happen when someone moves out. We have always indicated that we intend there should be safety-net protection for such authorities, which should be paid for from a levy on what we regard as disproportionate gain. If one gives words their ordinary English meaning one sees that we are talking about a system that will not scoop off all the incentive, and I think we can talk sensibly, from the experience of local authorities, about means of achieving that. I want to assure hon. Members that that is the scenario we are looking at.
John Healey
I want to believe that the Minister can make this work, but the more I listen to him, the more complex and uncertain this system seems to me. I wonder whether he has really grasped this issue and whether he has looked at his own authority. In 2006-07, his authority—Bromley—suffered a loss of business rate income of more than half. In at least two of the following five years, the volatility was more than 10% of the total business rate income. In that sort of situation, which has been exemplified within his own authority, the system of top-ups and tariffs will be complex and uncertain, and some authorities will find themselves top-up authorities in one year and tariff authorities in the next. That will make essential local government planning very difficult.
Robert Neill
With respect to the right hon. Gentleman—I have genuine regard for his attention to detail in these matters—we have made it very clear from the outset that the top-up and the tariff will come as a consequence of the setting of the baseline, which will not change until the reset. The protection that authorities will have is that the amount of the top-up and the tariff will move with RPI, so there will not be erosion because of that. All that is separate from the set-aside—the safety net, in effect—and the levy, which will deal with significant loss when someone closes down a business or something of that kind.
John Healey
I am grateful to the Minister, who is being generous in giving way. Whether it is the top-up and the tariff or the set-aside and levy that are designed to deal with this wild volatility, the central point remains: many local authorities, including his, see great variations year on year in their business rate income. That makes essential financial planning and management, particularly when finances are tough, much harder to do and calls into question the very design of the new system.
Robert Neill
With respect to the right hon. Gentleman, he makes the case for having a decent period between the resets, with the protection of the uprating of the tariffs and top-ups. I know that he follows these matters closely, but there is a distinction between the operation of that system and the levy and safety-net arrangements. On his criticism about complication, I have to say that although he did not create it, he presided in a distinguished and elegant fashion over the four-block system. If anyone thinks that is simple, then I say that Schleswig-Holstein is a minor province of outer Mongolia by comparison. This system is simpler and more transparent and it gives an incentive. That is why my authority welcomes the principle. However, because I accept that these are technical matters, as the right hon. Gentleman knows from his experience, it is sensible that we have the flexibility to consult on the options right across the board and, when we have consulted local authorities, they will be scrutinised by the House under the affirmative resolution procedure.
Mr Kevan Jones
Clearly councils will be compensated if they have significant losses, but the hon. Member for Bradford East (Mr Ward) made the good point—although it is a rare occurrence—that in one year there could be a big draw-down of the central fund. What level of central contingency will have to be kept back to address any significant changes year on year?
Robert Neill
That is a degree of hypothesis that it is not realistic to deal with at this stage. If the hon. Gentleman looks at the detail of the regulations, he will see that the very fact that we are creating the ability to carry over year to year makes provision to deal with the point he makes.
Robert Neill
I have been very generous and I am about to finish, but I will give way once more.
John Healey
The Minister has indeed been generous, but these are Committee proceedings. May I pursue the point raised by my hon. Friend the Member for North Durham (Mr Jones) about what constitutes a significant drop? Would the Minister regard as significant the £52.2 million drop in his Bromley local authority’s business rate income in 2006-07? Would he regard last year’s drop of £5.5 million as significant? For the purposes of the provisions we are debating, would he regard both, either or neither as significant to his local authority?
Robert Neill
With respect to the right hon. Gentleman, to answer the question in those terms would prejudge the whole point of the consultation. I shall not do that. Hon Members have probed and have, I think, received clear answers, so I hope they will withdraw the amendment. If not, I ask the Committee to vote against it.
Helen Jones
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Temporary Chair
Given the breadth of recent contributions, I do not think that we need to have a stand part debate on schedule 1. Any Members who wish to speak have a chance to do so now or when we debate the next group of amendments.
Robert Neill
It is good to see you back in the Chair, Mr Robertson. I will do my best to confine my remarks to the amendments we are considering. I am of course always happy to meet any hon. Member to discuss the funding arrangements for their local fire authority. I hope that it goes without saying that I also meet members of fire authorities and will continue to do so.
Let me deal first with amendment 48. I hope that the hon. Member for Derby North (Chris Williamson), upon reflection, will withdraw the amendment, on the grounds that it is impractical and ill conceived. It would not do the job that it is intended to do because it misunderstands the nature of integrated risk management plans. That plan, which every fire authority has, is a locally produced and consulted document, drawn up by professional fire officers and debated by members of the fire authority, relating to the allocation of local need to deliver the budget that they already have. It is not, and never has been, a tool for determining the distribution of resources between fire authorities nationally, and it has never been designed or used as a means of comparing need between local fire authorities. That is not the case now under formula grant, and it would be illogical for it to be so under the business rate retention system that will replace it.
There is a means of taking into account need and risk in the fire sector within the current system, and there will continue to be such a means under the new system’s baseline arrangements. The baseline funding calculation for the resources each local fire and rescue authority needs to deliver its services is already based on needs and risk, because the fire resource element within the formula includes the need to take account of deprivation, control of major accident and hazard sites—major risk sites, in other words—fire safety enforcement, community fire safety and so on. That was updated at the last settlement to reflect a consultation with local fire authorities. Because the baseline under the business rates retention system is based on the formula grant assessment we have for the current year, the needs and risks are already taken onboard. They are therefore covered in the baseline calculation and will be uprated, as I have indicated, by RPI in the same way as for anyone else.
Chris Williamson
Can the Minister assure the Committee that all fire authorities in the country will have sufficient resources under the Bill to fulfil their integrated risk management plans?
Robert Neill
No one has suggested to me that they do not have sufficient resources at the moment, and nothing in the current proposals would change the relationship between the IRMPs and the current plans. I am sorry to say that the hon. Gentleman misunderstands what is a pretty fundamental part of the operation of fire planning. IRMPs are not a national resource allocation tool. Currently, the needs formula within the resources and needs element of the formula grant calculation separately allocates moneys to each fire authority. The authorities then consult locally on the design of their IRMP, and it is on that basis that they decide on the deployment of appliances, personnel, stations and so on. That is the case now, and it will not be changed in the slightest under the new scheme.
Chris Williamson
Of course I acknowledge the Minister’s point on the distribution of funds, but we are entering a new era, and the fact is that under the new regime fire authorities could be well short of the funding required to fulfil their obligations. I do know whether he has heard the concerns of the metropolitan fire authorities, for example. The new regime he is advocating today could leave fire authorities in an invidious position in which they are unable to offer the general public the proper protection that they have been able to offer hitherto.
Robert Neill
With respect to the hon. Gentleman, that is highly unlikely. In fact, I cannot conceive of such a situation—for this reason, which he really ought to know if he has studied the topic. Fire authorities are in the business rates retention scheme because about one third of them are county council authorities. If they were outside the business rate retention scheme, we would have the perverse situation in which one third of all fire authorities—county council fire authorities, in effect—were nevertheless funded within business rates retention, while the remaining ones, including the metropolitan and other combined or stand-alone fire authorities, were funded by a wholly separate means. It is therefore logical to include them all within the same scheme.
Robert Neill
Let me develop the point, because it may deal with the hon. Gentleman’s question.
Given that authorities are, therefore, all within the scheme, they all benefit from the baseline calculation, which already takes as their starting point their current allocation, which in turn already takes account of need and risk in the fire system. Precepting authorities, including all the metropolitan authorities, will be top-up authorities, because almost all precepting authorities—as they currently are—will come under the new scheme. They will therefore benefit from the top-up being uprated by retail prices index inflation in order to protect them throughout the period. So I hope that that has dealt with the point.
Andrew Gwynne
Greater Manchester is one of the metropolitan fire authorities, and I understand that there will be a baseline throughout Greater Manchester for fire and rescue, but, on the retention of business rates, what happens in districts that have had substantial business rate growth as opposed to districts that have had low growth or no growth? Will there be a disparity in precepted funding, or will the precept remain the same throughout the old metropolitan county?
Robert Neill
Greater Manchester is protected, because the top-up does not change between the reset periods, save that it is uprated by RPI. So Greater Manchester, as a top-up authority, will be protected from instability. That will be the way with any top-up authority, so Greater Manchester’s situation will not be affected by what happens in its districts, because it is a top-up authority and it has the protection of the RPI uplift until the next reset. That is the answer to that point.
I hope that for those reasons the hon. Member for Derby North will reflect on the fact that his amendment is not the appropriate means of addressing the problem. IRMP does not compare like with like at all, and if we funded to IRMP we might reach the perverse situation in which the locally consulted delivery document drove the funding centrally. That has never been the case; it never was under the hon. Gentleman’s party in government; and it would be illogical. I hope that on reflection he will not press his amendment.
Robert Neill
The hon. Gentleman has not intervened in the debate before, so with respect I will press on to the next point. He has only just come into the Chamber, so I will give way to those hon. Members who have been present and listening to the debate throughout.
On new clause 2, I understand the issue that the hon. Member for Derby North raises, but I hope that he will not press it to a vote, either. I take on board the concerns that he and others have raised about the impact that might occur when there is a major redevelopment and, for a period, a consequential loss of business rates income. None of us would wish to create a perverse disincentive to such major redevelopment. It is fair to say that, if it were to cause a significant loss of income, it would qualify for the safety net, which would be capable of picking things up. I have already said that we will consult on the calculation of the safety net.
I am concerned about the new clause, because it would give 100% indemnity up-front for an early years’ loss of income, so the risk is that it could indemnify delay and inefficiency in such important redevelopment schemes. There is a strong incentive for a local authority itself—alongside the other good reasons that most local authorities have—to get on with things quickly, and for it to press its private sector partners in a redevelopment scheme to do so, if it knows that there is no up-front, 100%, no-questions-asked indemnity.
Mr Jones
I obviously do not want to draw your wrath, Mr Robertson, for going off the subject, but time and time again the Secretary of State talks about devolution and giving local government powers, and then he produces this centralising Bill and gives councils diktats week after week about what they should and should not be doing—whether they should have pot plants, or whether they should have weekly bin collections. The public will start to see through it. He cannot have it both ways. He cannot have a Bill that will centralise power and centralise the finance that local councils raise and at the same time tell councils what they can and cannot do, but that is his method. If the Government do not accept the amendment and accept need as the basis for payments, people will come to the conclusion that many of us have already come to—that they do not actually care about need.
Robert Neill
I will endeavour to confine myself to matters that are germane to the amendments, so I will be fairly brief despite the temptation to inquire what happened to Trotsky and Bakunin drives. I imagine they were probably airbrushed off the map in Durham at some point.
I am not sure whether hon. Members have quite followed how paragraph 28, relating to the distribution of any remaining balance in the levy account, will actually work. As I hope they will be aware, provision is made in the Bill for some or all of the remaining balance in the levy account to be returned to local authorities. It provides flexibility over the amount to be distributed and the basis of distribution, and we believe that it is wise and sensible to keep it that way. It will enable the distribution of the remaining balance to be carried out as is appropriate at a particular time. For example, it might be appropriate to distribute it to authorities on the basis of need, or if we assess that there is no such need, we might wish to return it to some of the levy authorities to make up for the taking of levy moneys that were not needed for disbursement. It would be wrong to preclude that possibility, which is provided for in the Bill.
Mr George Howarth
Actually, paragraph 28 states:
“The Secretary of State may determine that an amount equal to the whole or part of the remaining balance on the levy”
be distributed. I am sure it was inadvertent, but the Minister misled the Committee slightly a few moments ago.
Robert Neill
No, with respect, because first, there is flexibility to distribute all or part of the balance on that basis. Secondly, that flexibility is not unchecked, because the procedures in sub-paragraphs (2) and (3) require the Secretary of State to include both the amount to be distributed and the basis on which it is to happen in a local government finance report, which will be subject to the scrutiny of the House. Such a report is laid before the House and can be debated.
Finally, paragraph 18 tightly defines the debits that may be made from the levy account. The effect of that paragraph, taken together with the rest of the schedule, is that any money in the levy account can be used only to make safety net payments or to be returned to local authorities as part of the distribution of the remaining balance for the year. The idea that the Treasury can somehow snaffle it and keep it back from local government is simply not correct.
Mr Kevan Jones
But the Bill does not state the criterion by which the remaining balance will be distributed. The Secretary of State could therefore quite easily decide that he wished to distribute it in such a way as to save the Treasury money by substituting it for central Government spending. The Minister cannot get away from the fact that the Secretary of State will decide how the money is spent. It will be his decision alone.
Robert Neill
The distribution will be subject to scrutiny by the House in a local government finance report. It is correct that it will not be defined in primary legislation, just as the basis of the distribution of formula grant is not. That is decided by the Secretary of State, so in fact we are being utterly consistent with the system that was operated under the previous Government. We are being consistent, and the hon. Gentleman is being wholly inconsistent, not for the first time.
Mr George Howarth
I have already mentioned paragraph 28. Sub-paragraph (1) refers to paragraph 19(2), which states that the remaining balance must be
“debited (as an item of account) to the levy account kept for the year”
or
“credited (as an item of account) to the levy account kept for the next year.”
The flexibility still lies with the Secretary of State, who can decide whether it is utilised in the current year or the subsequent one.
Robert Neill
That just enables the sum to be carried over. The point is that it would remain in the same account. It could not be used for any other purpose. It could be carried forward for a year as part of a buffer, but as I have indicated, it could go out of the levy account only by way of a safety net payment or as a distribution of the remaining balance to local authorities. Either way, it would go back to local government. That is the key point that I am not sure has been grasped. I therefore hope that Members will not press amendment 33 to a Division.
Amendment 35 would require any payment in respect of the remaining balance to take place in the following year. There are some technical reasons why I do not believe it would work, including the need for any payment from central Government to local authorities to include the standard provisions about Treasury consent. I know that Opposition Members will remember that. It is a technical thing, but it has to be done.
I assure Members that in practice we would not want to hold back any distribution of the remaining balance once it had been agreed in the local government finance report. However, payment as described in the amendment might be difficult to achieve because of the timing of that report.
Helen Jones
If the Government do not intend to hold back payment, why have they included in the Bill provisions for the payment to be made at such times and in such instalments as the Secretary of State determines? Surely holding on to the money once they have determined to pay it out makes it a gain to the Treasury, however we look at it.
Robert Neill
It is equally useful to have those provisions to deal with in-year payments, and I have already indicated to the hon. Lady that we do not intend to hold back the money and make gains to the Treasury. One way or the other, the money will all ultimately go back to local government.
There are technical issues to consider about the timing of the report and Treasury consent, so I say to the hon. Lady that I am willing to consider whether anything more can be done to provide greater clarity on Report. I assure her that we do not intend to hang on to the money, but if there is a way in which we can make the provision work better technically, we can return to the matter on Report if she does not press the amendment now.
Question put, That the amendment be made.
Mr Jones
Indeed. I know that the Secretary of State will say, “We are giving you these local responsibilities”, but how are authorities going to plug the gap? It will be either by cutting services even more or by increasing domestic rates.
Another point on which we need clarification is the “exceptional circumstances” mentioned in the Bill. I should like to know what “exceptional circumstances” are. In what circumstances would the Secretary of State look at a reset during the 10-year period?
Local government needs certainty, and not just in providing services. For example, three-year budgets allowed councils to take decisions that led to efficiencies. If councils are not sure how much money there will be each year, that uncertainty will prevent them from making strategic decisions, savings and investments. That flexibility will be lost. The argument is that this is a localism Bill giving local councils a say, but as we have explained clearly, it actually gives more powers to the Secretary of State and Ministers to decide the future of local government. I should like to know from the Minister why 10 years was chosen for the reset.
Earlier, there were some comments about revaluation. When the Secretary of State was in opposition he argued vigorously against the revaluation of domestic rates. It is time to look at domestic rates, because in all our constituencies we see disparities between different properties. The revaluation process was rushed, which led to a record number of appeals. The Bill will give rise to a situation where the inequality set in domestic rates in the 1990s will be set in the business rate assessment too.
Robert Neill
I can tell my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) that of course we shall consult fully before we finally set, through regulations, the figure for the reset. It is important to bear in mind that a key point of the legislation is to give a proper incentive for growth, and the longer the period between resets, the greater the incentive for growth for local authorities. The shorter the period between resets, the more the growth incentive is minimised.
I am sorry that the Opposition, having claimed to be in favour of localisation, seek to introduce amendments that would significantly undermine the growth incentive for local authorities. It is even more unfortunate that when they make their case, having accused us in rather patronising tones of not doing our homework, they clearly get their homework very wrong, as I shall shortly demonstrate.
New clause 5 would implement a system that triggered an annual reset. That would destroy any incentive in the process whatever, and negate the whole growth incentive. The Opposition say we should listen to the interests of local government. In the consultation responses that the hon. Member for Warrington North (Helen Jones) cited, 78% of respondents favoured fixed resets, so their amendment ignores that 78%. It is a pity they did not do their homework properly on that one.
Robert Neill
No, I do not intend to give way.
The Opposition proposal would simply recreate formula grant through the back door.
In relation to the period between resets, the hon. Member for Warrington North needs to start reading things a little more carefully. She claimed that a majority favoured three years and quoted a figure of 23%. That is incorrect in relation to three years. Let me tell her what the response said: the three-year period that the Opposition proposed as their preferred reset period was supported by exactly 10% of respondents. A 10-year reset period was supported by 23%, and a period between five and 10 years had the support of in excess of 70%. If the Opposition cannot get their basic maths right, we will not have much faith in any amendments that they table on local government finance. Their rather specious argument falls, at the very least on grounds of thorough inaccuracy.
Of course it is important to ensure that we get a proper balance of need and resource at the beginning of the system, and we will do that. At the reset periods—we will discuss with the local government sector the appropriate—