Local Government Finance Bill

Public Bill Committee, 31 January 2017.

Vicky Foxcroft (Labour, Lewisham, Deptford)

Even if it is cold?

Examination of Witness

Gareth Thomas (Labour/Co-operative, Harrow West)

YouQ will have seen overnight the concerns of the Local Government Association about the future funding of social care. Do you envisage that social care will be better funded or worse funded as a result of 100% retention of business rates by local authorities?

Gareth Thomas (Labour/Co-operative, Harrow West)

That was a very interesting answer, but it did not go anywhere close to answering what was a fairly simple question. I will ask it again to help the Minister, who may not have had a coffee or a glass of water to get him fully up to speed. Will social care be better or worse funded as a result of the measures in the Bill?

Gareth Thomas (Labour/Co-operative, Harrow West)

I was being sympathetic.

Justin Tomlinson (Conservative, North Swindon)

And we are not allowed coffee here.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q It was an interesting answer. I would be very grateful for an answer to the actual question I asked.

Peter Aldous (Conservative, Waveney)

It is.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q The deletion of the revenue support grant, which funds social care among other things, is one of the key aspects of the Bill. I gently ask again: does the Minister expect social care to be better funded as a result of the abolition of the revenue support grant and the 100% devolution of business rates, or not?

Justin Tomlinson (Conservative, North Swindon)

Q I spent 10 very happy years as a councillor and I get lobbied regularly by council leaders and experienced councillors. Minister, you are widely respected for having a good command of this area and for recognising that there is huge potential within local authorities.

I have a number of questions. The first is: the heart of the Bill is about encouraging and incentivising local authorities, but what more can we do to ensure that there is the capacity to take advantage of that? In Communities and Local Government questions, I raised the point about attracting more business-minded people. One of the challenges is that we will be expecting more of local authorities. When we go out, all of us, with our respective parties recruiting potential councillors, we will be asking more of their time. How can we attract sufficient numbers who have the expertise to be able to understand and deliver on what will be very large budgets? It is about looking at business-minded people and at councillors of all backgrounds to have that capacity.

Justin Tomlinson (Conservative, North Swindon)

Q That is great, and hopefully the LGA will take a lead on that, encouraging local authorities, particularly on the sitting hours.

We have seen other schemes introduced, such as the new homes bonus, which provide incentives to local authorities to encourage growth, and in return they are financially rewarded. However, very few residents are aware of those schemes, so they do not see the benefits and, in turn, they do not lobby the local authority to act as the scheme was intended. With all the different incentives that are being put in place, what thought is there on how we can ensure that residents are engaged? For example, if a local authority wishes to stimulate growth by discounting business rates for certain sectors, how can we ensure that the public understand what is being done and how their money is being used for a long-term decision?

Justin Tomlinson (Conservative, North Swindon)

Q Our annual council tax bills provide information on the areas where it has been spent within the council. Perhaps statements such as, “We have made the following changes for the following reasons” could be part of such bills.

When councils set council tax, they are ultimately held accountable in the annual or four-yearly election, with the check and balance of the electorate. When changes are made to business rates, that protection is not necessarily in place. You talked about consulting with businesses. Could you expand on that? Will that only be with the businesses that are business rate payers?

Justin Tomlinson (Conservative, North Swindon)

Q Great. My final question is this. Potential changes in business rates may incentivise businesses to push for a revaluation. Is consideration being given to the capacity of the revaluation officers? Presumably, there would be a spike if there were changes, as people look to review their costs.

Rob Marris (Labour, Wolverhampton South West)

In the policy background in the explanatory notes it saysQ ,

“The reformed system will also provide local authorities with strengthened incentives for growing their business rates income.”

In fact, the Government like that so much that they mention it twice in the explanatory notes, as did the Minister in his opening remarks. I note that under an Act that is now seven and a half years old, the Business Rate Supplements Act 2009, the only business rate supplement currently in force is that levied by the Mayor of London in relation to Crossrail. What evidence does the Minister have that the proposed changes will encourage local authorities to do what the Minister by implication thinks they are not doing— that is, trying to expand their local economies and build their local businesses?

Rob Marris (Labour, Wolverhampton South West)

Q But what evidence is there that those powers are likely to work, given, as I understand it—correct me if I am wrong—that neither of the consultations your Department has done has reported yet? There is a consultation on key issues across the reforms and one on the fair funding review; has either of them reported? If not, how can the Committee weigh the evidence on a key plank of the Bill, which is to do with incentivising local authorities? Where is the evidence?

Rob Marris (Labour, Wolverhampton South West)

Q But we will be discussing the Bill in Committee very shortly. Your answer is not encouraging, Minister. Will we receive the responses before the end of our sittings on the Bill?

Kevin Hollinrake (Conservative, Thirsk and Malton)

On redistribution, I accept that the Bill gives local authorities the incentive to grow business rates, but the vast majority of income that will go to councils will be through a redistribution of the 100%, and that will be distributed according to need. The Local Government Finance Act 1988 stated that local authority funding for people should be fair, regardless of where they live. In London, local authorities have around 40% more spending power. If you add up all the local authorities of whatever tier divided by the number of people, the residents pay a lot less in council tax. Out of the total funding—business rates, revenue support grant or council tax—they have 40% more spending power, yet they contribute less in council tax. There does not seem to be any correlation in terms of need in those local authorities. That cannot be fairQ .

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q I accept your points, but, as you say, it was revised 10 years ago and there is still an inbuilt unfairness in the system, which the LGA technical working group is looking at. Are we simply going to carry on and adjust it slightly? Are we going to accept regression as part of this and say it is just baked-in past formulas, rather than take a bold approach based on clear evidence and need? At the moment, 159 different measures go into the system, and it is not producing a fair outcome yet. I have no issue with any local authority or area getting more money than my local authority as long as it is demonstrably fair. We have got to get away from this opaque system and move to a fair system. We are using the LGA technical working group, but is there not some vested interest in there that will prevent this from being fair in the future?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q The Communities and Local Government Committee recommended that there be an independent body to look at the issue, and we are bringing forward an independent analysis of funding. I am sure the Government will look at that very carefully and take it into account before they make a decision, but I seek reassurance about that.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q As part of this change to the system, another £12.5 billion of spending power is going back into local authorities, and I am sure you are going to want to see extra responsibilities commensurate with that kind of money. It is very difficult to change a system if there is no more money coming in—obviously there will be winners and losers, because it is a zero-sum game—but more money is coming in to deliver extra services. Do you think it would be fair if the local authorities that are getting an unfair deal at the moment get the greatest benefit from the extra money?

Jim McMahon (Labour, Oldham West and Royton)

You referred to the additional £12.8 billion in your opening statement, and it is mentioned in the explanatory note. Is it net of the rate relief that is in place?Q

Jim McMahon (Labour, Oldham West and Royton)

Q Will it be net?

Jim McMahon (Labour, Oldham West and Royton)

Q So, to be clear, the £12.8 billion does not include the £2.6 billion mandatory rate relief or the £1.1 billion small business rate relief.

Jim McMahon (Labour, Oldham West and Royton)

Q Perhaps I am not explaining myself clearly enough. The idea is that local government will retain 100% of business rates collected, so the quantum of money collected in business rates. What I am trying to get to is this: when that is returned to the local authorities in whatever formula is devised at the end of all this, will the Government take the burden of rate relief outside the money collected in business rates? Or do you expect it will be covered as part of the business rates that are collected?

Jim McMahon (Labour, Oldham West and Royton)

Q Right, that is quite an important point. So, the £12.8 billion that has been referred to in the report is minus the £3.7 billion relief that is in here.

Jim McMahon (Labour, Oldham West and Royton)

Q That is an addition.

Jim McMahon (Labour, Oldham West and Royton)

Q Is it envisaged that the grants currently given to local authorities will end? So when you talk about self-sufficiency and self-financing of local government, is it envisaged that that will be solely for council tax and business rates?

Jim McMahon (Labour, Oldham West and Royton)

Q There is a problem, isn’t there? If we take the £12.8 billion and we deduct the £7.1 billion that is currently spent through revenue support grant, and then you take into account the adult social care pressures as £2.8 billion as well as the additional responsibilities, the truth is there will be no new money for adult social care. By the time you get down to the bottom line, there will not be enough money to cover the social care gap.

A direct question: do you agree with the Conservative chair of the LGA who calls the adult social care situation a crisis?

Jim McMahon (Labour, Oldham West and Royton)

Q But do you accept that it is a significant part of local authority pressure? Adult social care and safeguarding make up the lion’s share of most local authorities’ spend.

This is a package, of course. Are you concerned that, based on the Department for Communities and Local Government forecast, council tax will increase by 25% over the life of the Parliament? What would you say to the average Oldhamer in a band E property who will be paying £2,000 a year in council tax?

Jim McMahon (Labour, Oldham West and Royton)

JustQ to be clear, I am not looking for a commentary on the last Labour Government; I am looking for a response from a Minister in today’s Government.

Jim McMahon (Labour, Oldham West and Royton)

Q Do you think that a 25% increase—a council tax bill of £2,000 for band E—is reasonable?

Jim McMahon (Labour, Oldham West and Royton)

I understand that, Mr Gapes. That is why I am trying to push the Minister to answer the question.

Clive Efford (Labour, Eltham)

We would like an answer to that last question though, Mr Gapes.

Jim McMahon (Labour, Oldham West and Royton)

Q Do you accept your own Department’s figures of a 25% council tax increase?

Jim McMahon (Labour, Oldham West and Royton)

Q Do you accept your own Department’s figures of a 25% council tax increase over the life of this Parliament?

Jim McMahon (Labour, Oldham West and Royton)

I am not sure you have.

Peter Aldous (Conservative, Waveney)

Q Minister, you said at the beginning that incentivising growth is at the centre of this Bill. As I said on Second Reading, I am concerned that there may be local authorities that wish to incentivise growth but, for reasons of location, the geographical make-up of their area or issues such as site contamination, may not be in a position to do that. Can you outline how you are going to support those authorities?

Kevin Foster (Conservative, Torbay)

My question is similar to that asked by Mr Aldous. On Second Reading, there seemed to be a negative undertone in relation to the prospects of some areas and councils to be able to incentivise growth and actually deliver the increased business rates that we hope the Bill will bring. As the Minister, how do you see the provisions helping to defeat some of those arguments? What monitoring will the DCLG be able to do to ensure that councils are Q actually going ahead with it, rather than adopting that negative, anti-business attitude and then using the area’s position as an excuse?

Kevin Foster (Conservative, Torbay)

Q I have a second, quick question. What difference do you think the average council tax payer and council resident is going to notice if this Bill is passed?

Clive Efford (Labour, Eltham)

Q How much of the local government grant comes from the business rate collected by the Government and redistributed to local authorities?

Clive Efford (Labour, Eltham)

Q Sorry, can you remind me what it is?

Clive Efford (Labour, Eltham)

Q What proportion of local government spend is raised locally?

Clive Efford (Labour, Eltham)

Q It is quite a small proportion that is actually raised through council tax, so the ability of local authorities to raise money at local level is very limited in many areas in relation to business rate. What incentives are there for areas where it will prove very difficult to generate extra income through the local business rate? Will the Government be putting anything aside for those local authorities?

Clive Efford (Labour, Eltham)

If somebody else that wants to come in—

Gareth Thomas (Labour/Co-operative, Harrow West)

Q How do you envisage the tariff and top-up system that you intend to retain differing under 100% business rates retention from the current system under 50% business rates retention?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q I understand how it will be used; I am asking how it will be different.

Jim McMahon (Labour, Oldham West and Royton)

Saved by the bell.

Examination of Witnesses

Gareth Thomas (Labour/Co-operative, Harrow West)

Q Two of the concerns about the Bill that have been raised with me relate to how redistribution might work—fairly or unfairly—when 100% of business rates are retained by local government, and whether responsibilities such as social care will be better funded under the new system than they are under the current system. I wonder whether you both might reflect on those two concerns.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q To follow on from that, there are clearly some in Whitehall who think that social care is now being properly funded and there is a package in place that will meet all the social care needs that have been identified. How would your two organisations respond to the idea that there is now a settled funding stream in place?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q You have both mentioned that distribution, and assessment of need, are the keys to this. Your spending power for both your authorities is around 30% lower than some of the highest spending authorities in London, for example. Is the current system anywhere near fair?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q In the current system, are you confident—which I suppose should be the case—that spending power per capita, or the total, or whatever, relates to need in that local authority area? Are you confident that that system works at the moment?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q And are you part of the technical working group on the LGA that is looking at this review of how distribution occurs?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Do you understand how the system works in terms of how it is distributed between different local authorities?

Kevin Hollinrake (Conservative, Thirsk and Malton)

I am sorry.

Rob Marris (Labour, Wolverhampton South West)

Q The Government, and indeed the Minister, have been very clear that one reason for the Bill is to strengthen incentives for councils to grow their business rates income. The Minster also said that while we all wish to encourage business growth, that is not happening everywhere. He said that this morning about the actions of councils. Is the Local Government Association aware of any council in England that is not trying hard to encourage business growth, and with it business rates growth, or is not trying hard to encourage business overall?

Rob Marris (Labour, Wolverhampton South West)

Q Just to be clear, the Minister has not actually produced any evidence for those assertions. He may do so later, but he did not get any such evidence from the LGA because you are not aware of any such evidence.

Rob Marris (Labour, Wolverhampton South West)

Thank you.

Justin Tomlinson (Conservative, North Swindon)

Q Following on from that, the whole point of the Bill is to unlock potential, to incentivise and encourage you. You have identified where those potential streams will come from, but ultimately it will only be as good as your capacity to deliver it. Are you confident that councillors have the sufficient skills base to be able to maximise it? You have just said that you do not think that any local authority is not encouraging growth, but—this is a good example—many local authorities have still not signed off their plan for the new homes bonus or are still fighting development. That is often for good reasons, but they are fighting it. Are you confident that councillors in all local authorities have sufficient capacity to take advantage of these potentially much larger budgets and incentives, which need to be chased down?

Justin Tomlinson (Conservative, North Swindon)

Q So are you confident that these changes will help encourage busy people—people with business experience—to step up to help run councils, as opposed to career politicians who wish to tweet all day about various political causes? I say that as someone who was a councillor for 10 years. What we need, when we are being given big budgets, is a mix of councillors from all backgrounds. Do you think that this will provide an incentive to get some really good new councillors who do not have a career-politician background?

Justin Tomlinson (Conservative, North Swindon)

Q No, there are fantastic councillors, but we all recognise that, as things stand today, it is very difficult to encourage busy people to give up their time. We will be asking even more of them as councillors, because they will have more responsibility and more complex decisions to make. Are you confident that this will help encourage them, or will it put people off stepping forward?

Jim McMahon (Labour, Oldham West and Royton)

Q The Independent Commission on Local Government Finance recommended that an independent body be established to look at redistribution, to make sure that it was fair and equitable and to take it out of the hands of Ministers being able to manipulate the funding settlement for different reasons. Is that something that the LGA still supports?

Jim McMahon (Labour, Oldham West and Royton)

Q The risk of appeal is obviously accommodated for in the item that we are discussing. Many local authorities have to ring-fence a significant amount of money in reserves, pending large appeals—large warehouses and supermarkets in particular can have a big impact on local funding. Do you think that there should be a tighter or shorter period in which those appealing can reclaim money due?

Jim McMahon (Labour, Oldham West and Royton)

Q Finally, the Minister does not believe that there is a crisis in adult social care. Do the LGA and Core Cities agree with that view?

Kevin Foster (Conservative, Torbay)

Q I have listened to the answers so far and will not go back over old ground. However, I am interested to hear more about the difference the Bill will make. There is no point in legislating for the fun of it. What actual difference will it make? Apart from the obvious use of the provision for discretionary relief for public toilets, what aspect of the Bill do you see your councils looking to use for the benefit of local residents?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q Is it fair that, under the Bill, only areas with a mayor are going to be allowed to raise business rates up to a cap of 2p in the pound?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q In the consultation document, which Ministers put out last year with a view to this legislation coming forward, they very strongly hinted that the improved better care fund, the public health grant and the rural services delivery grant, among other pots of money, would be abolished as part of the package around devolving business rates. What impact do you think that will have on the groups of councils that you represent?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q The Minister painted a picture of 100% business rates retention leading to a new dawn of councils rushing out to encourage huge amounts of new economic growth. I wonder if that is a picture that you recognise. If not, what barriers to that economic growth can you think of? I ask that in the context of a rural area where the space for the type of warehouse facilities that you could imagine generating significant business rates will be much more limited.

Peter Aldous (Conservative, Waveney)

Q For the record, I am chairman of the county all-party group, for which the County Councils Network provides the secretariat. Mr Soulsby and Councillor Borrow, you very much emphasised the importance of the needs-based review of the fair funding formula being synchronised with the implementation of the provisions in the Bill. Do you think there is a case for including that in the Bill?

Jim McMahon (Labour, Oldham West and Royton)

Q My question is for Mr Ware and London Councils. The Bill provides for business rate pooling arrangements to take place. We are sat in a borough where the band D council tax is £672 a year, looking at a borough across the road where the band D council tax is nearly twice that. Does London Councils have a view about the potential for council tax pooling, and have any discussions taken place with the Government?

Jim McMahon (Labour, Oldham West and Royton)

Q One of the problems with the current council tax system is of course that Governments do not always have the courage to go forward with revaluations, which is why it is now 26 years since the last one. Is there a view that that should be localised—that that should be a local freedom?

Jim McMahon (Labour, Oldham West and Royton)

Q Finally, does London Councils have a view about the abolition of the GLA transport grant?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Councillor Borrow, you were talking about how unfair the current system is and the need for a review. I think you also said that there will be winners and losers. I agree, as I think most people would. How do we cope with that? Your local authority’s spending power, for example, is around 35% less than some London authorities with much higher spending power. There are going to be winners and losers. Mr Ware is here wearing one hat; you are wearing another. How are we going to deal with that situation without it being a fudge that bakes in the current unfairness?

Kevin Hollinrake (Conservative, Thirsk and Malton)

You have also got nine of the 10 authorities with the highest spending power in the country.

Gareth Thomas (Labour/Co-operative, Harrow West)

indicated dissent.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q This is evidence. And nine of the 10 lowest council tax charges in the country. I am not saying every local council in London—

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Councillor Borrow will disagree with that.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Can you answer my question? If you change a formula, there will be winners and losers. I would absolutely subscribe to the view that that should be based on need and need alone—whether that means your local authority, mine, or anybody else’s is better-off—as long as it is transparent, clear and simple, so that we can all understand it. How do we deal with that situation?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Sorry, we are short of time. I want Councillor Borrow to come back on that.

Clive Efford (Labour, Eltham)

Q Mr Ware, following on from Mr Hollinrake’s questions, does not the capacity to raise income through fees and charges and to generate local economic activity—that is what we are talking about in business rates—need to be taken into consideration? Let me explain myself. I am from the borough of Greenwich, sitting on the outskirts of inner London, and I look in on Camden and Westminster, which can raise money through things such as parking charges, which enables them to finance local government expenditure in a way that other areas cannot. Is that not a major factor? You cannot take the face value of how much one local authority charges for council tax as a way of demonstrating its efficiency.

Clive Efford (Labour, Eltham)

Q It is that ongoing ability to raise income from other sources that areas such as London can benefit from, but other local government areas struggle to do so.

Clive Efford (Labour, Eltham)

Q How much is the capacity to raise money from fees and charges a factor for different local government areas across the country?

Rebecca Pow (Conservative, Taunton Deane)

This slightly relates to those issues. Mr Ware commented on incentives being important; I just wondered what your views are about abolishing the levy payments, which basically are a tax on successful business. Would it help to free up more money and make a differenceQ ?

Peter Aldous (Conservative, Waveney)

Q As part of the whole devolution process, in order to facilitate the new business rate retention process, at present various responsibilities are being transferred from central to local government so as to ensure fiscal neutrality. I would welcome your views on that. From your perspective of taking on those responsibilities, are there any unexploded bombs that you might think are being passed to you unfairly?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q Just to follow up the ticking time bomb analogy, if the £3 billion public health grant were to be abolished, would public health become a ticking time bomb for local government?

Gareth Thomas (Labour/Co-operative, Harrow West)

The Minister painted a picture this morning of a wonderful, revolutionary Bill that is going to galvanise economic growth across the country. I think that is a reasonable assessment of his performance. Do you think there is anything wrong at all with that assessment?Q72

Gareth Thomas (Labour/Co-operative, Harrow West)

Q How would you change the Bill?

Peter Aldous (Conservative, Waveney)

Mr Thomas has asked the question that I was going to ask. None of you, to a larger or lesser extent, have given the Bill the glowing endorsement that perhaps the Government and Minister were hoping for. What other provisions would you look to put in the Bill to address those concerns? MrQ Nolan said that not everywhere is silicon valley. What are we going to do to help those areas that are not silicon valley?

Gareth Thomas (Labour/Co-operative, Harrow West)

Development.

Jim McMahon (Labour, Oldham West and Royton)

ThereQ is a tension here between business and public service in respect of the role of business rates. Businesses do not like rates, because they have to pay them whether they make money or not. Governments tend to like rates, because rates are property-based and the Government can know where to knock on doors. I have two separate questions. The first is to business: is there an alternative to business rates that takes into account the new world of commerce and how businesses make money and are taxed? The second is to local authorities: would you welcome it if the types of powers that are offered to combined authorities and Mayors were given to all billing authorities?

Jim McMahon (Labour, Oldham West and Royton)

Q Perhaps my question was too narrow. For instance, I might have expected some contributions to make a bid for the retention of other taxes and duties that are raised at a local level, such as stamp duty, fuel duties, air passenger duties, as a way of having a broader tax base from which to generate income for public services.

Kevin Hollinrake (Conservative, Thirsk and Malton)

To touch on distribution, which has been referred to a couple of times, the key now is how this pot of extra money is distributed. There seem to be some real disparities in the system at the moment; unfairnesses, I would call them. I will give a few examples at random. Harrow, for example, gets £80 more per head in spending power than North Yorkshire, despite the fact that Harrow has a wealthier, younger population. There does not seem to be any correlation between the spending power of local authorities and the need in those local authority areasQ .

Gareth Thomas (Labour/Co-operative, Harrow West)

Perhaps it is the quality of representation, Sir David.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I would go for a different explanation, but what is your feeling?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q What you allude to is that there will be winners and losers—it is a zero-sum game. How do we cope with that? Most people will recognise that the system is unfair. How do we move to a fairer system without those people who are going to lose out being particularly concerned about it?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Would you accept that, despite the fact that it might take time to get to a final position—there will be a transitory period—the formula should be based on cost drivers, not on what has gone before?

Anna Turley (Labour/Co-operative, Redcar)

Staying on the point about fairness and distribution, can you elaborate on what you think could be the characteristics of potential losers? Ms Miller, youQ mentioned structural deficit. As we work through the next couple of years on the detail of this, what are the demographic and economic characteristics you think we should be looking out for, as we try to balance some of the challenges to be faced? Do you think there is a commitment within the local government family to work collectively and collaboratively on this, or do you think we will see tension around competition and people wanting to put their local authority before the greater good, perhaps?

Steve Double (Conservative, St Austell and Newquay)

I know from my term as a local councillor that often, the relationship between elected members in particular and the business community can be quite strained and not always the best. Often, that is because many members have little experience of business. I am interested in your reflections on one thing that I see as a potential benefit of the Bill: strengthening that link between the council and the local business community. It is very much a two-way thing: the council needs to understand the local business community much more, and the business community will see a direct link between the rates that it pays and the benefit of the local community. I am interested in your reflections on that. Do you see that in the same wayQ ?

Steve Double (Conservative, St Austell and Newquay)

Q I take your point about growth and development. I was more touching on the direct link and the fact that, at the moment, my local business community pay their business rates to central Government. There is no direct connection between them and their local council in how that money is spent, whereas if the Bill comes into force, there will be a direct connection, and the business community will see that they are directly funding the operation of the council. That was more what I was touching on. I take your point about future growth, but I see the current strengthening of that direct relationship.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q One suggestion we have heard is that the needs assessment process should be conducted independently of Government. I wondered where the panel stands on that question.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q As I understand it, the Bill will be fiscally neutral, so in order to get the £12.8 billion of additional business rates income, local authorities will have to do more. Where do you think that will lead? I appreciate that there is still a conversation going on between the LGA and the Department but, as I understand it, they are some way apart in the discussion on responsibilities. Can you give us a sense of the flavour of where you think the extra responsibilities will fall? What do you think the impact on your budgets will be from the end of at least the better care fund, the public health grant, the rural services delivery grant and some other funds? The consultation document from last year strongly hinted at those being ended.

Rebecca Pow (Conservative, Taunton Deane)

This is more of a general question that I would like to put to Mr Spence first. The Bill is all about encouraging growth and generating more business rates, which will hopefully then enable us to pay for more services. Would you say that the way in which that has been handled until now has potentially hampered growth, and do you see the Bill changing it? Some tools in the Bill are supposed to help—pooling, the infrastructure levy and things like that. Mr Spence, would you say that that was going to happen through the BillQ ?

Rebecca Pow (Conservative, Taunton Deane)

Q Forgive me for interrupting, but what were your views about pooling? There are some good tools in the Bill for amalgamation of bigger areas to give incentivised or different business rates to encourage more economic growth in a wider area.

Jim McMahon (Labour, Oldham West and Royton)

Q Just to reflect some of the debate, is there a conflict in that there are different measurements of success when we talk about growth? There is net jobs and the number of people in employment; equality, or the amount of income people can get in different types of jobs; and there is square footage—building big sheds to generate large business rates, so why not? Is it not far better to have a more rounded system of taxation and incentives so that local areas can determine for themselves what type of rounded economy they need, without being driven down one particular route depending on the flavour of the Government of the day? What I hear form businesses is that they need a long-term plan, strong local leadership and long-term certainty. It strikes me that business has not had that for quite a long time.

Justin Tomlinson (Conservative, North Swindon)

This is a question for Mr Spence. In the briefing that you provided to us, you said:Q

“We also believe that there should be a maximum amount a billing authority can raise its multiplier, alongside the maximum reduction limit per year.”

Could you expand on that, please?

Marcus Jones (Conservative, Nuneaton)

Q Mr Spence just made an interesting point regarding the way in which the multiplier may be increased at the point when a particular authority decides to change that policy of having a reduced multiplier. By definition, I take it you are, therefore, against local authorities having the ability to increase the multiplier, as has been suggested by some people.

Jim McMahon (Labour, Oldham West and Royton)

Q Is there not a slight tension with that approach? Areas with historically low tax bases have to charge more council tax per property just to generate the same total. We could find ourselves in the same situation with a business rate base—local areas could be forced to increase it dramatically just to keep their heads above water. Although I am not always in favour of a national cap, I think there might be a call for it, so that the gap does not widen and so that there are proper top-ups and tariffs in place. Do you not accept that businesses can thrive only if local areas thrive? Businesses do not sit in isolation.

Jim McMahon (Labour, Oldham West and Royton)

Q But it is more likely that a local authority will be increasing or decreasing the business rate base as part of an economic assessment of growth. It is not going to do it in isolation simply in cash terms. You could see a situation, for example, where town centres have been massively hit by office relocations to out-of-town centres and out-of-town parks—we perhaps see the same with retail. If the powers were extended to a building authority to raise and to lower, you could easily see a council looking to reduce business rates in a town centre for office accommodation for retail, and creating a levy on out-of-town retail parks and office blocks as a way of making that a neutral exercise.

Peter Aldous (Conservative, Waveney)

Q I have two questions, one directed to the private sector and one to the public sector. Mr Spence averred that this form of business taxation would be different from anywhere else in the world. At this time when we need to be looking outwards, does he think that that gives us a cutting edge for the country’s businesses? My other question is to Ms Miller and Mr Nolan. Just looking at the central list and how that is to be governed, I have in mind power stations. If you have an existing power station and it is decommissioned, you are going to be facing a lot of costs. If you have a new power station—

Gareth Thomas (Labour/Co-operative, Harrow West)

What is wrong with the Bill, in your view? Obviously, the Minister thinks it is wonderful, but no doubt you will be slightly sceptical about whether that viewpoint is completely accurateQ .

David Mackintosh (Conservative, Northampton South)

This is a question for Mr Lowman. On Second Reading I agreed with the point made by your organisation that there is a potential for local authorities to try to increase business rate revenues by signing off larger planning applications for developments at the cost of small businesses. How can that be mitigatedQ ?

Jim McMahon (Labour, Oldham West and Royton)

Q Mr Lowman, your members provide a very important community service. Do they feel they are on a level playing field with the large supermarkets?

Jim McMahon (Labour, Oldham West and Royton)

General taxation, of which business rates are part.

Jim McMahon (Labour, Oldham West and Royton)

Q A view has been expressed in different places that, because many convenience stores are family-owned businesses—they might have a brand but they are essentially family-owned businesses—cash flow is tied and the time taken deal with appeals can have a serious impact on the viability of many of them. One suggestion was a differential, backdating element, whereby convenience stores have a longer period to backdate if they are successful in their appeal—they might need it for cash flow—while backdating for supermarkets potentially should not be as generous. Is that something you have discussed within your industry or with your members?

Jim McMahon (Labour, Oldham West and Royton)

Q Professor Travers, you are widely regarded as a leading expert in your field—rightly, in my view. We spoke to the Minister earlier about the pressure of adult social care and asked whether he agreed with people in the industry that it was in crisis in terms of its funding. What is your professional assessment of social care funding?

Jim McMahon (Labour, Oldham West and Royton)

Q Has any research been undertaken to assess what the impact might be? If there is limited growth in the tax base for business rates and council tax within the total, but the demand for services is outstripping that available resource, is there any assessment of what that gap could be?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Mr Lowman, how comfortable are your members with things like business rate supplements and infrastructure supplements?

Gareth Thomas (Labour/Co-operative, Harrow West)

Q Let us imagine that you are the ruthless, hard-nosed treasurer of a council that sees this Bill coming into force. Presumably, you are going to want to try to negotiate a very low top-up, assuming that you are a reasonably well-off area in terms of finance and land. Presumably, you are not going to look at small businesses. You are going to rush, as much as you can, to encourage the Amazon-style warehouse or JD Sports kind of warehouse. Surely that is the only incentive that is wise in the Bill in terms of business rates growth. You might actually put to one side the engine of future economies or businesses because they are not going to bring you any reward.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q Do you think there should be an element of independence in the needs assessment process that is being done at the moment, and that might be done at future points?

Steve Double (Conservative, St Austell and Newquay)

Q Something has just come to me while listening to the discussion and following on from the question about granting planning permission for large units. I represent a fairly rural constituency in Cornwall, where we have seen a number of convenience store-type premises that qualify for relief, perhaps small business or rural rate relief, being converted to residential units. I wonder whether there will be an unintended outcome from the Bill and whether there may be an attraction for local authorities to grant permission for change in use to residential. They are not getting the income from the business rates, because of the relief, but they will suddenly get council tax if it converts to a residential unit, therefore increasing their income. Has that crossed your mind and is there anything we can do to try to prevent that happening?

Anna Turley (Labour/Co-operative, Redcar)

Q My question is particularly to Professor Travers. How do you build resilience into the process? I am thinking particularly about an area such as mine, Redcar, where the loss of one company—the liquidation of SSI—resulted in the loss of £10 million in business rates overnight to our local authority. If we are going down the route of more devolution and moving potentially to more and more being retained within a local authority, how can you mitigate that over-reliance on a large company within that process?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q In your introductory remarks, Professor Travers, you said you would prefer to move to a totally locally-funded situation, but your remarks just then seemed to step away from that. How are those two things consistent?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q You mention redistribution, which is key and underlies the whole policy in the Bill. How fair is the current system, and what system should we move towards?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q You mentioned that the money coming into the system was declining by the end of the decade, but there is obviously a lot more money coming in—£12.8 billion of extra money—and it has yet to be decided what local authorities’ responsibilities will be for that money. So there is actually more money in the system.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Q Therefore, is it not all the more important that the future formula is based on those cost drivers? There will be some new cost drivers as a result of the additional responsibilities at that point.

Gareth Thomas (Labour/Co-operative, Harrow West)

Q In the debate about how to even out changes in the tax base, let us take the example of Heathrow. The third runway is coming. One would have thought that that would inevitably make the area around Heathrow attractive to a number of businesses. Councils such as Maidenhead, perhaps, and Hillingdon will be hoping that their treasuries will benefit from substantial business rate income down the line. How do you think that sort of major structural change at local level should be dealt with under the system?

Rebecca Pow (Conservative, Taunton Deane)

Q My businesses in Taunton, particularly since I have been an MP, have had a constant gripe that they pay business rates and so little is kept locally. I am told that 7.5% is what we get. Do you foresee that this new Bill will enable a much closer relationship to be forged between business and the local authorities, now that there is the concept of keeping 100% of the business rates? It has been quite antagonistic, has it not, Mr Lowman, particularly from your experience?

Rebecca Pow (Conservative, Taunton Deane)

You should meet some of the ones in Taunton Deane.

Rebecca Pow (Conservative, Taunton Deane)

Exactly. They blame central Government— so now they are going to.

Jim McMahon (Labour, Oldham West and Royton)

Q This is a more rounded debate about the sustainability and funding of local public services. If we are going to move to a localised method of funding, we need to make sure that it is robust and can fund the demand for public services. I have a concern about council tax in that context. People already believe that they pay far too much council tax and that all they get in return is their bins emptied—and now that is happening less often than it used to, in many areas. People are questioning why they are paying council tax and a potential 25% increase is programmed over the life of the Parliament. Is there not a risk, with business rates, in the way there is with council tax, that although a lot of this conversation has been about cost, the real debate is about the value that people believe they get in return? I would welcome a sector view, not about the total cost, which is always a bugbear for council tax and business rate payers, but on the perceived value in return.

Jim McMahon (Labour, Oldham West and Royton)

On that point, do you think the Bill might change that relationship? Rather than it being a straight tax, will people see it almost as a contract of joint benefit and joint growthQ ?

Jim McMahon (Labour, Oldham West and Royton)

Do you think there is resilience in the valuations and the multiplier to take into account the fact that the world is changing? I do not think we have yet taken into account even the fact that we heavily tax plant and machinery. A lot of manufacturing towns have now changed to warehousing and distribution towns, and their tax base has been completely destroyed by that calculation. We are now moving to automation, which could have an impact. Do you think there is resilience in this to protect post-industrial townsQ ?

Marcus Jones (Conservative, Nuneaton)

Q I have just a couple of questions. Mr Travers, you mentioned risk at some length, which DCLG certainly understands is a real challenge. We obviously want to get the system right to mitigate risk. Obviously, we have removed the levy, which has acted as an impediment in many areas to retaining the proceeds of growth. What is your view of the provisions in the Bill relating to lost payments, the changes around pooling and the interaction with the safety net? How do you see that working? The second question I want to ask very quickly is about multi-year settlements and the certainty for the sector that will come from having a longer-term view, rather than a very short-term view, which has generally been the case until very recently.