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Local Government Finance Bill

Volume 539: debated on Tuesday 24 January 2012

(Clause 1, Schedule 1, Clause 2, Schedule 2, Clauses 3 to 5, Schedule 3, Clauses 6 and 7, new Clauses relating to non-domestic rates and new Schedules relating to non-domestic rates)

[2nd Allocated Day]

Further considered in Committee

[Mr Lindsay Hoyle in the Chair]

Schedule 1

Local retention of non-domestic rates

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.’.

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.

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?

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.

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?

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.

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.

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.

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.

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.

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?

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.

In the Bill as currently drafted, those paragraphs provide that where an authority’s tariff is bigger than the tariff originally calculated, it should pay the difference to the Secretary of State, and where it is smaller, the Secretary of State should refund the difference. Similarly, if the top-up is bigger than originally calculated, the Secretary of State should pay the difference. Where the top-up is smaller, the authority should pay back the difference.

That is all pretty obvious and straightforward, but the provisions do not specifically deal with the situation where, as a result of a recalculation or an amending report, an authority switches from being a tariff authority to a top-up authority or vice versa. It might never happen even if there were a recalculation, but it is conceivable that a local authority could be on the cusp, marginally in either the top-up or the tariff category, and a recalculation pushed it to the other side of the line. We are inserting the amendments as a precautionary measure to tidy up and make the position crystal clear.

That is what amendments 3, 4, 7 and 8 do, so that local authorities need not be in any doubt. They ensure that payments from the authority or from the Secretary of State as a result of that recalculation can be made, to make the system work fairly. To do that, they introduce the sub-paragraphs 6(A) and 8(A) into paragraph 12, and 4(A) and (6A) into paragraph 14. Amendments 5 and 6 make consequential amendments to schedule 1. When we get to them, amendments 9 to 17 make consequential amendments thereafter, so that everything is tidied up.

It is a pleasure to be here under your chairmanship, Mr Hoyle.

The Minister explained clearly the purpose of the amendments, but the fact that the Government have had to table so many amendments at this stage of the Bill is ample proof of how they are rushing it through the House. The amendments do not deal with esoteric issues. They are not about something easily missed. They simply deal with the situation where a revised calculation is made and an authority may move, as the Minister rightly said, from tariff to top-up or the other way around.

It is typical of this Government’s sloppy thinking and of their desire to rush the Bill through without proper scrutiny that they forgot one simple fact, which the most junior clerk in a council finance department could have told them—that if they want people to pay up, whether that is a council tax payer, a council or a Secretary of State, they must make provision for payment. The fact that Ministers did not even notice that when the Bill was drafted shows how little time they have spent reading it, a fact that was convincingly demonstrated by their performance on Second Reading and on the first day of Committee in the whole House. They are not up to speed on the measures that they are introducing.

We have no objection to the amendments. They are tidying-up amendments, but let us imagine what Ministers would say if a local authority were so sloppy. After all, in determining the baseline for rate income, they would base their figures on what a local authority would receive if it had acted diligently—a term that they have signally failed to define in answer to questions in the Chamber and in Committee. Local councils would be called to account by Ministers for such an omission, and rightly so. It is a shame that Ministers do not apply the same high standards in their own Department. They are as careless in their drafting as they are with the effects of their legislation on local communities. These amendments, straightforward as they seem, epitomise the Government’s attitude to the whole Bill: sloppy, rushed and badly considered.

I am interested to hear my hon. Friend advise the Minister that he should talk to local authorities and take an example from them. Will she encourage him to take a trip to Stockton-on-Tees borough council, my local authority, because not only was it named council of the year the year before last, but for the past six years it has been recognised as providing excellent services and financial management and delivering for the people? The Government might learn something there.

I am sure that it would benefit many people to take a trip to Stockton-on-Tees, as my hon. Friend suggests. There are certainly many things that the Department for Communities and Local Government could learn from good local authorities, but it has failed to do so. We do not intend to divide the Committee on these amendments, but they show what a shambolic lot those on the Government Front Bench are and how little they have thought through the Bill.

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.

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.)

With this it will be convenient to discuss the following: amendment 40, page 21, line 17, at end insert—

‘(1A) The regulations must specify the definition of a “disproportionate gain” which is used to calculate whether a relevant authority is required to make a levy payment.’.

Amendment 28, page 22, line 19, at beginning insert—

‘(1) If a calculation under paragraph 21 shows that a levy payment is to be made to the Secretary of State by a relevant authority, the Secretary of State must—

(a) notify the authority of the amount of levy he deems to be payable;

(b) allow the authority twenty-eight days to make representations either about the basis of the calculation of the levy payment or its accuracy, and

(c) give due consideration to the authority’s representations before issuing a final determination.’.

Amendment 29, page 22, line 22, at beginning insert ‘Following a final determination’.

Amendment 27 is a probing amendment designed to test the Government’s intentions with regard to the implementation of the scheme. The Bill states that the “Secretary of State may”—the phrase is repeated throughout the schedule—by regulations determine whether a local authority is required to make a levy payment and, if so, the amount of that payment. What we want to know from the Minister is why the Bill uses “may” in this case rather than “must”. It is clear from clause 1 that any regulations will be subject to the affirmative procedure, but it is not clear whether the Secretary of State intends to proceed by regulation in all cases. We are advised that the use of “may” rather than “must” or “shall” implies that he might proceed in some other way. I am not sure how, although it might be by ministerial diktat, by a written ministerial statement or by a finance report, but it is important to make the situation clear, because the Committee is dealing with an enabling Bill that gives huge power to the Secretary of State, without being clear about how it will be used.

We would therefore like to hear from the Minister exactly what the Government’s plans are, because the Bill is not consistent. In several other places, it uses “must” in relation to regulations, so what is the reason for the different wording in the case before us? The Minister must forgive me if I appear to be developing a suspicious nature; it comes from dealing with him for so long on this Bill. But we would welcome an assurance from him that the regulations on this point, and on the others that we have highlighted in this group of amendments, will be placed before the House and not simply introduced through a statement from the Department.

Does my hon. Friend think that local government will feel confident that power is not being centralised if we are able to see the regulations now, as the Bill is going through Parliament, rather than being tagged on, as she suggests, once it has done so?

My hon. Friend makes a valid point. I, like other Opposition Members, have mentioned the Government’s failure to produce any draft regulations, and the reason why is that they have proceeded so quickly with the Bill and did not want to take it into Committee upstairs. In turn, we all know the reason for that: they simply do not have enough business to go through on the Floor of the House, because their business is snarled up in the Lords.

Amendment 40 would add new sub-paragraph (1A) to paragraph 20 of the schedule and require the Secretary of State to specify in regulations exactly what he defines as “disproportionate growth” or—the term that is often used—“disproportionate benefit”. The amendment, like many that we have tabled, is an attempt to address what my hon. Friend has just highlighted: the alarming lack of clarity in the Bill and the consequent uncertainty for local authorities.

We know the mechanism that the Government intend to use to calculate the levy. After abandoning ideas for fixed-rate and banded levies, they intend to create a proportionate levy, which in effect is an individual rate for each local authority, but not only do we have no clarity about the percentage level, but it is still not entirely clear what will constitute a disproportionate benefit.

The Government, in their response to the consultation, say that the proportionate levy will create a system to allow a local authority to retain growth in a fixed proportion to its baseline level. The levy is intended to tackle the gearing effect, whereby authorities with a high tax base gain more from the same growth than those with a low tax base, but it does not do so. It mitigates the effect; it does not tackle it. The simple fact of basing a levy on growth above a baseline level, however, leaves many questions unanswered, and amendment 40 is an attempt to get some answers from the Government, because, unless there is some certainty about the definition, local authorities will find themselves in real difficulty when deciding on future projects.

Let us imagine, for example, a rural authority that loses a large employer, one that pays a high proportion of local business rates. The authority’s business rate income goes down, and might do so before the baseline is set. It then attracts another employer to the area. When that employer starts up, the authority gets a big increase in business rates for one year; the increase tapers off after that. Is that a disproportionate gain, given that the local authority is simply replacing income that it had previously lost?

What about a town that redevelops its centre? The council would see a fall in business rates but when the redevelopment was complete, it would see an increase. Would that be treated as a disproportionate gain, given that the council might use the increase to fund the development in the first place? How would the levy then apply to a TIF 1 project—as opposed to a TIF 2 project, which would be outside the scheme?

Furthermore, the Secretary of State has given himself a Henry VIII power to reset the scheme. [Interruption.] The hon. Member for Rossendale and Darwen (Jake Berry) should learn that PPSs should be seen and not heard. How would the council get any certainty for future planning?

My hon. Friend posed the question of how anyone could have certainty about what will and will not apply in a TIF area. Given the Second Reading debate and the performance of the Secretary of State, the one certain answer is that such certainty will not come from asking the Secretary of State. When I challenged him, he simply could not say whether resets would apply to TIF schemes. That is a matter of serious concern to all of us who want to make the schemes work.

I remember that exchange between my right hon. Friend and the Secretary of State; he did not get a proper answer. Later, we will debate the clause about resets as they relate to TIF schemes.

The issue also applies to setting the levy. Let us say that there was significant house building in a local authority. That would lead to more employment and business rates, but would also mean that there was more demand on the council’s services. Unfortunately, in the Bill, the Government refuse to take account of service needs and service provision. Where would that leave the council? Would it have made a disproportionate gain and therefore be subject to a levy? A levy set as a percentage charge on growth simply does not deal with such issues, but the Government do not seem to wish to look at the matter. They want simplicity, but in a complex world—and that is not achievable. We have moved the amendment to get some clarity.

Amendments 28 and 29 simply seek to bring the procedure for requiring a levy payment from an authority more into line with that used for the local government finance report. As we have said, the Bill is remarkable for giving no indication of how the Secretary of State intends to exercise many of his powers. As has been said, we have seen no drafts of the regulations. The Secretary of State used fine words about the radical devolution of power in introducing these measures, but it is noticeable that that is totally inconsistent with what is happening under the Bill.

As I said, we have a concern about how the levy payments will be calculated, but the amendment seeks to ensure that local authorities, if required to pay a levy, have the opportunity to make representations about that. That happens with the local government finance report, because a copy must be sent to relevant authorities, and the Bill contains provision for what will happen if there is an amending report. However, the levy is calculated at the end of the year to which it relates and it is not clear whether levy payments will be included in the local government finance report.

My hon. Friend is making a telling point. Is it not extraordinary that not even the basic principles on which the levy calculations will be made have been spelt out in the legislation? One can well understand the need for some discretion for Ministers, when operating rules, to be able to adjust on a year-for-year basis; I have no difficulty with that. But Ministers should be open with the House, the public and local government about the principles on which they are acting. The complete silence in this legislation about anything to do with the principles that determine whether an authority gets a disproportionate gain seems extraordinary.

My right hon. Friend, who is a very distinguished former local government Minister, is exactly right. In effect, we are being asked to write a blank cheque to the Secretary of State, who can then do what he wants with it.

The hon. Lady is making a fair point in relation to these probing amendments. Surely, however, a word such as “disproportionate” would require an exceptional change. For example, the building of a new town would involve a more substantial amount of building than the much smaller developments that she has mentioned. I have some sympathy with her view that it would be good to have a full set of regulations in advance of the Bill. It is extremely regrettable that more regulations are not in place. That would also apply to Bills going back many years to a time when I was in her shoes rather than the other way round. Equally, this is a relatively early stage of the Bill, and I am sure that regulations will be up and running well before Third Reading.

I am grateful to the hon. Gentleman, who makes a fair point about regulations. I do not know whether they will be with us before Third Reading, but at that point we will have finished debating the Bill in Committee, so it will not be terribly helpful. He makes an interesting point about what he sees as a disproportionate gain. However, the problem is that that is not what Ministers see as a disproportionate gain. That is why we are trying to get some definition into the Bill. Local authorities cannot plan unless there is some certainty in the system, and as yet we do not know what it will be.

My hon. Friend is developing a powerful case. As my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford) said, the Committee should at least expect to see confirmation of the principles on which judgments about disproportionate benefit will be made and on which any levy will be based, but that is not in the Bill. The principles on which a levy would be based are not even set out in the response to the consultation that was published in December. That is not good enough, and we expect more from the Minister and his colleagues.

Again, my right hon. Friend makes a telling point. The consultation document merely says that there will be a proportionate levy. The obvious question to put is this: “What is the proportion and how will it be decided for each authority?”

Does my hon. Friend agree that the situation would vary from authority to authority? For example, Northumberland is losing Alcan, which is a large employer in the south-east of the county and therefore a large contributor to the local tax base. There is a big difference between Northumberland losing such an employer and, say, the closing down of a Westminster office block that will be replaced quite quickly.

My hon. Friend reminds me of a good point that I was going to make earlier. I had Northumberland in mind because it is a place that I am very fond of and know well. If Northumberland has lost Alcan by the time the baseline is set, it will be set on the basis of lower business rates. If the authority replaces Alcan with another employer, will it be deemed to have made a disproportionate gain? The Minister must explain why an authority that is trying to do the right thing by bringing in new employment to replace what has been lost should be penalised for that.

An authority will need to be able to make representations when the amount of levy that it is going to be asked to pay is first published. As I said, we do not know whether the levy payments will be included in the local government finance report. That is because the Bill is so vague.

We think that it is only fair to specify that, if a local authority is required to make a levy payment, it should be notified and be allowed to make representations about the calculation before the final decision is made. It might be that an authority challenges the basis of the decision that it has made a disproportionate gain. That is unlikely, but it could happen. It might be simply that the calculation has not been done correctly. We have seen that many times. That is why we have amending local government finance reports. It has been known occasionally for Departments to get their calculations wrong. In such circumstances, councils should have a mechanism for making representations before the final decision. Local authorities are, after all, partners in this process. Neither the Secretary of State nor any other Minister would want to be a provincial governor figure handing down unchallengeable decisions.

My right hon. Friend says that they would. I do not think that that applies to the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), although I can easily imagine the Secretary of State in a toga, handing down diktats.

Is it not crucial not only to have a procedure whereby councils can appeal to the Secretary of State, but to put that within a proper time frame? Local authorities get their settlements towards the end of the calendar year in order that they can finalise their budgets by the end of the financial year and set a proper budget for the new financial year. It is therefore crucial to get not only the mechanism but the timing right.

My hon. Friend makes a worthwhile point. The problem with the whole Bill is that it is difficult for local authorities to know the framework in which they will be asked to operate.

We are not proposing anything that would create a long delay, merely a simple system to allow councils time to check the calculations and respond before the Secretary of State issues a final determination. Most local councils support a levy system, even if they have different views about how the levy should be calculated. We do not anticipate that large numbers of councils would challenge decisions merely for the sake of challenging them. However, it is important for any system to give local authorities a mechanism to make representations if they think that the Department has simply got it wrong. I believe that Members from all parts of the House would want their local council to be able to do that if the need arose, to ensure that the communities that they represent are dealt with fairly.

The amendment would not prevent the Government from exercising the powers that they will be given if the Bill is passed. It does not even seek to change the way in which the levy is calculated—or it would not if we knew how the levy was going to be calculated. It is aimed purely and simply at ensuring that there is fairness in the system. I therefore commend it to the Committee.

It would be helpful to have a little more detail as soon as possible on what the Government mean. I hope that, in winding up the debate, the Minister is able to set out a little more detail than we have at the moment.

Clearly, the intention of the proposal is to offset unforeseen falls in rate income in certain areas. By their nature, those falls are unforeseen. Is it the Minister’s intention that the levy on disproportionate gain will be equal to any unforeseen fall in income in certain authorities, or will the Government simply recoup a levy of disproportionate gain even if there has not been an unforeseen fall in council business rate income?

If things were dealt with on an annual basis, there might be a year in which there was not any unforeseen fall, so it might be sensible for a number of local authorities with quite large gains to take a share of the income, whereas in a subsequent year there might be the opposite situation. What I am trying to tease out of the Minister is whether the exercise will be annual or whether it will occur over a period of years. Could a fund be carried forward to cover unforeseen falls in council business rate income? From my reading of the Bill—it would help if there were more information—I believe that the fund is to be exceptional and will affect only a number of authorities. One might think of the developments in Stratford, nuclear power stations, estuarial airports, car plants and so on.

It would also be interesting to the Committee if the Minister set out whether, if the Government recouped disproportionate gain, it would be simply for one year or for a period of years. What does the Bill mean by a “share” of the fund? If a car plant were built within a local authority area, would the Government split the difference of the income with the local authority? We need a little more information so that we can have a much better idea of how the Government intend to proceed over the next few years.

Clearly, a base year will be set for business rates. On that basis, I believe that changes will be small to start off with. However, it would be useful if the Minister could give a little more information. What advance knowledge would the Government have of a change? Presumably if a major car plant, shopping centre or utility plant were closed, a local authority would very quickly write to the Minister. Will he also get information from the Valuation Office Agency about what is happening in a particular district, including new developments? We need a little more information so that the Committee can feel a bit more comfortable about what the Government intend.

My hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said that the one thing that local authorities need is certainty. Having been in local government myself, I know that a council needs certainty about what its income will be each year. The previous Government made great strides by providing three-year budgets, which allowed councils to plan their expenditure over a period of time.

As we heard on Second Reading and last week in Committee, although the Bill has been trumpeted as being about devolving decision making to a local level, it will actually do completely the opposite. It will give the Secretary of State the power to determine, in his toga or otherwise—the idea of him in a toga should probably come with a health warning—what level of budget councils will get.

We need a definition of disproportionate change. We have heard some interesting examples, and we need to know whether the building of a major power station or the loss of a manufacturing site such as Alcan would be considered disproportionate. Would a council forgo business rates for a year while a site was being redeveloped, only to gain them back when occupancy took place? Without such definitions, councils will be left in a very difficult position in planning their budgets.

Another issue to consider is the time of year when a closure happens. My right hon. Friend the Member for Knowsley (Mr Howarth) has just told me that his local authority area has one large employer that provides 7% or 8% of the local business rates. Let us suppose that it closed just after the business rates had been set. Would the local authority get any compensation in the following year? It is not clear, because we do not know what the regulations are going to be. That could leave his local authority minus 7% of the income that the Government think it is getting, which would be totally unfair. It would help if we knew what the regulations were, what the circumstances were and what the Government consider a disproportionate gain.

Matters differ from local authority to local authority. Northumberland has just been mentioned, and one large employer, such as Alcan, leaving has a huge impact on business rate income. No doubt in more affluent areas, the position is different. For example, I am sure that the loss of an office block in Westminster would not have the same impact on Westminster city council’s overall tax take. I would also argue that it is much easier in Westminster to replace that income through attracting new jobs than it is to replace the income that Northumberland county council will lose. If we do not know what the regulations and the circumstances are, it will be difficult for local authorities to plan. I do not understand why the Government are reluctant to come forward with a definition of disproportionate, or with the regulations.

We are supposed to be scrutinising the Bill on the Floor of the House. My hon. Friend the Member for Warrington North (Helen Jones) said that the reason for that is to give us something to do while the legislative programme is in a logjam in the other place. There is therefore no shortage of time to discuss the details. I do not know whether, in their haste to push the Bill through this Chamber, the Government do not think that they have time to draw up those regulations and explain the way in which the levy will work. That is very interesting. If we were doing our job properly, we should have a chance to examine the regulations.

If the Bill is passed in its current form, local government will look forward to its future budgets with some uncertainty. Local authorities cannot just turn their services on and off. Local authorities’ long-term planning is done on an annual basis, but they need to consider not only how to make savings, if their budgets have to be reduced, but their investments. It is claimed that the Bill will encourage local authorities to incentivise business to grow in their areas, but if they do not know how much money they have to do that, it will be difficult for them to forward plan.

My hon. Friend makes a good point about uncertainty. If a local authority’s income mid-year falls below what is in the budget plans, that causes all sorts of problems. That happened just the other year, with the in-year cuts. Local authorities had prepared a budget on an assumed amount for that year and ended up with substantially less funding.

They did. If local authorities have to lay people off mid-year and sever contracts, that costs local government more. In County Durham, when we had those in-year cuts, it cost the council more money to sever contracts than it would have cost to allow them to fulfil them. No money was saved, but things were made very difficult for local councils, not only to plan their budgets but to manage services.

My hon. Friend mentioned Alcan—a major organisation—and the tragedy in Northumberland. Does he recall when Samsung walked out of the Wynyard Park estate on Teesside, devastating the business rates in that area and throwing many people on the dole? Does he agree that a local authority’s fortunes could rest on the whim of multinational corporations, which can move in and out at will? There is all the more need for a proper safety net for local authorities that face that sort of dilemma.

My hon. Friend makes a good point and Samsung is a good example. Its inward investment provided jobs and income to the local authority. Such situations are more relevant in rural areas or constituencies such as his and mine in the north-east of England. When one single, large employer leaves, there is a disproportionate effect. I do not want to talk again about Westminster city council, but a single employer leaving that area does not have as devastating an effect on the employment base and on the local tax take.

Another thing that the Bill does not take into account is the increased demand on local government services when there are large closures such as the one to which my hon. Friend referred. There is bound to be more take-up of, for example, council tax benefit, even though the Bill cuts it by 10%. The Minister was on the letters page of The Journal in Newcastle trumpeting the Bill and saying how great it is, but he did not mention that it would come with a 10% cut in council tax benefit. He will be pleased to know that I have written to the paper to correct him and to ensure that readers of The Journal have the full facts about the Bill rather than the propaganda he is trying to put out.

Another concern is the centralisation of powers. The Bill gives power to the Secretary of State to decide the levy. In addition, as we have no definition of “disproportionate effect”, that is down to the Secretary of State’s whim. When we look at what the Secretary of State has used his powers for in the past 18 months, we see that he supports and rewards people who vote for his party—I take my hat off to him, because he is quite political. If we do not have a definition of “disproportionate”, what is to say that he will not use the Bill to assist regions that he wishes to assist for political reasons?

The Bill means that the current or a future Secretary of State could punish councils that he or she does not favour, or that do not support one of his or her central diktats—the current Secretary of State talks about decentralisation but intervenes quickly to decide what local councils should do. If we do not have a definition of, or explanation for, “disproportionate” in the Bill, a lot of council chief executives and treasurers will be in fear each year of not keeping in with the Secretary of State, because he or she will determine whether they will get the budgets that their councils need.

I am sure the hon. Member for North Durham (Mr Jones) will be glad to hear that I am not speaking just to protect the ratepayers and businesses in Westminster.

This has been a worthwhile debate. I appreciate that the amendments were tabled for probing purposes, and I hope the Minister will elucidate precisely what the context of the word “disproportionate” is. I suspect I agree with my hon. Friend the Member for Poole (Mr Syms) that the context will change over a number of years, and that this is not a one-off opportunity for ministerial diktat to determine that money should be taken away from a local authority when there is a big change in one particular year for the reasons that were given.

I wanted to make a much more fundamental point. I appreciate that the Bill will go to another place. I suspect much of the real scrutiny will take place there and I hope that, by that time, we will have details on precisely what regulations will apply to each and every local authority. It shames the House that so much legislation is skated through it. That is partly because of guillotines, which have been around for the 11 years that I have been a Member of this place. We can also see that so much important scrutiny of the Welfare Reform Bill is happening in another place because there is not quite the same pressure on time there.

I hope the Minister satisfies us when he responds to what has been said because some valid points have been made. I am fairly confident that we are looking in disproportionate terms at exceptional circumstances, and I think that the context will become clear over a longer period, but it would be useful to have that confirmed by the Minister. I hope he will also confirm that we will have at least draft regulations brought forward as soon as possible, because otherwise there will be the eternal suspicion—only a suspicion and nothing more—that the Department will utilise huge discretionary powers, when if localism means anything, it means a devolution down of powers. That underlines what the Bill is trying to achieve—to incentivise local authorities. That can happen only if there are regulations that will be met with confidence across the political divide within local government.

It is a great pleasure to follow the hon. Member for Cities of London and Westminster (Mark Field). I sat through his speech last week on the first day in Committee, in which he pleaded the case for Westminster. I found it difficult to sleep that night, given the strong concerns that he raised about the consequences of the Bill for his constituency. On reflection, I decided that it might not be that bad really.

I have some sympathy with the Minister, with the amendments and, indeed, with the Bill. Local government finance generally is so technical that it reminds me of the Schleswig-Holstein affair. People think that they understand it, but many years later they have forgotten it. Some 25 years ago, when I was a local authority finance chairman, I actually understood multiple regression analysis, but if anyone were to intervene and ask me to explain it now, I would struggle.

The right hon. Gentleman mentions Schleswig-Holstein, but he has not gone into detail about which local government Minister has gone mad as a result of all this.

I suspect that there are several candidates. I remember a few, but it would be churlish to name names.

I shall be brief, largely because my hon. Friend the Member for North Durham (Mr Jones) stole my thunder, but my concern is that in Knowsley we have two large private sector employers. QVC, the home shopping channel, employs about 1,500 people, and Jaguar Land Rover is also a major employer with more than 1,000 employees. There is no reason to believe that either company is in any danger. Both are very successful and are doing well, even in these straitened economic times, but what would happen if one were at some point to go bust—one of them represents 7% of the total business rates take? Unless there is clarity about what would happen in those circumstances, the effect on the finances of the borough of Knowsley could be appalling. We need clarity about what would happen in such circumstances. I hope, therefore, that when the Minister replies, or perhaps at a later stage, he can give some further and better particulars about how all this will work.

I would like to make just a few comments, because I have listened intently to the discussion and found I am quite confused about the time periods that different people are talking about. I would like to ask the Minister what time of year the levy will be announced—that is critical—and also which year will be used. I have found it difficult to see whether we are dealing with historical data or doing it as we go along.

One big change will be that council finance officers are likely to be preparing monthly reports on the revenue from business rates, which will be different from what happened previously. I can see how that will focus the council’s mind on what is happening to its business rates, as well encouraging it proactively to talk with its local businesses to check stability and so on. I can see a lot of positives in that, but I need to know what the stocks and flows will be—it is really confusing—what the time periods will be and when the announcements will be made.

I wonder whether the hon. Lady knows the answer to a question that is confusing me—I apologise to the Committee for my ignorance about this matter. Once the baseline for a budget is set at the beginning of the year, is that set in concrete, so that it is paid via business rates through the Government and essentially becomes a central Government payment, or does it represent locally collected business rates that are not then given to the Government? In short, is that baseline interruptible or is the next year interruptible, when a council’s business rates have gone down?

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.

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.

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?

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.

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?

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.

In trying to answer the question from my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), the Minister has raised more questions. He mentioned Alcan, for example, and if he is not prepared to say now what he thinks is disproportionate, how can the Committee scrutinise his proposals? I accept that it is very important that he consults local government but, surely, as the Bill goes through, Members should have a chance to question it and to have some input into the regulations, but the Minister is not prepared to give us that chance.

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.

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.

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.

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?

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.

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?

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.

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.

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.

Perhaps the hon. Gentleman could move closer to the microphone and then we could all hear his excellent explanation.

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?

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.

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.

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.

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.

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.

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.

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.

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.

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.

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?

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.

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?

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.

With this it will be convenient to discuss the following:

Amendment 48, page 23, line 9, at end insert—

‘(5) The regulations must make provision for safety-net payments to be made to relevant authorities whose calculated funding is less than the relevant funding calculated in regard to the authority fulfilling its integrated risk management plan.’.

Amendment 31, page 24, line 28, leave out ‘may’ and insert ‘must’.

Amendment 32, page 24, line 37, leave out ‘may’ and insert ‘must’.

New clause 2—Major redevelopment schemes: non-domestic rate income

‘(1) In any case where a relevant authority proposes a major redevelopment scheme resulting in a substantial loss of non-domestic rate income for a period exceeding one year, the authority may make an application to the Secretary of State for a safety-net payment to be made to the authority each year for the period of the scheme. The Secretary of State must determine whether to make such a payment having regard to—

(a) the proportion of non-domestic rate income which will be lost to the authority for the period of the scheme, and

(b) the future social and economic benefits of the scheme.

(2) The Secretary of State must notify the authority of his or her decision on whether or not to grant a safety-net payment and allow the authority 28 days to make representations about his or her decision before issuing a final determination.’.

It is a great pleasure to serve under your chairmanship, Mr Robertson.

Amendments 30, 31 and 32 were dealt with in some detail in the previous debate, so I shall not detain the Committee unduly by going over old ground. However, I shall speak in more detail about amendment 48, which would add a new protection in the Bill to ensure that fire authorities are enabled to fulfil their integrated risk management plans.

The plans enable fire and rescue services to develop a balanced approach to reducing risk within the communities they serve, and I hope that the Minister will look with some sympathy on the intentions behind the amendment. The plans combine prevention, protection and emergency response on a risk-assessed basis to improve the safety of local communities and to create a safer working environment for firefighters. They also include measures to help the community speedily recover from the aftermath of an emergency and to minimise the impact both to people and to the local economy. It is thus absolutely essential that funding for the fire service does not fall below the minimum amount required for it to carry out its vital duties. The amendment has the aim of ensuring that the obligation is on the face of the Bill. It would protect, through a safety net payment, authorities that might otherwise receive less funding than was required for them to fulfil their duties under the integrated risk management plans.

I understand that Ministers believe the financial risk will be mitigated by fire authorities receiving a percentage of the rates of the district authorities in their area, but what if they are wrong? They would be putting the safety of the general public at risk. If they are confident that their predictions are right, the safety net payment mechanism would never need to be evoked. Either way, I hope the Government will support the amendment.

In their response to the consultation on the changes, the Government said that if some fire authorities had their funding outside the business rate retention scheme, they would not be incentivised to make savings. We believe that is both unfair and untrue; fire authorities have all the incentive they need, which is to make their communities safer places by maximising their resources. The changes would also play fast and loose with the health and safety of the general public. The essential principle is that funding for fire services should be based on the risks and needs of the area, not solely on local economic circumstances.

Many local authorities engage in significant redevelopment schemes. I invite the Committee to look at how city centres have been revitalised in Derby, Leeds, Leicester, Manchester and many other cities, but some developments involve more than changing the shops or regenerating old buildings. They can involve a significant amount of demolition before a new project begins. New roads may be required, and some buildings may not be suitable for conversion, or they may not be worth saving.

That was the case when we regenerated the centre of my home city of Derby. Had that scheme gone ahead under the Government’s proposed new system, a significant amount of business rate income would have been lost to the local authority. Those situations can be addressed when the rates are pooled, but we fear that such projects might not go ahead under the new scheme because of the uncertainty it will create.

If shares of business rate income are to be decided year on year, an authority cannot plan effectively for a long-term project. They could use tax increment financing to fund the project itself, but that has two drawbacks. If they use a TIF 1-type scheme, there are problems if the scheme extends beyond 10 years because there may be a reset of the system by the Secretary of State. Such a time scale is possible for some major schemes, and we should like resets carried out before 10 years. A TIF 2 scheme has to be in an area designated by the Secretary of State and can only secure income to the authority when it is completed. The borrowing in such schemes is likely to be used to pay for the project; it is capital, not revenue.

New clause 2 is therefore intended to assist local authorities when they are undertaking such schemes. It would enable them to make an application in advance to the Secretary of State for a safety net payment to be made to them for the duration of the scheme. The Secretary of State would decide whether to make such a payment based on a consideration of the proportion of its income the authority would be losing and the future social and economic benefits of the scheme. That would allow a kind of cost-benefit analysis to be undertaken before a decision was made.

We have also sought to include social benefit in the calculation. The purpose of that is to ensure that issues such as the types of job to be created, rather than the number of jobs, could be looked at if there was an economic imbalance in the area. It would also enable other social benefits to be taken into account, such as improved transport access, community facilities, and access or provision for disabled people.

We have deliberately chosen not to limit any examination of social and economic benefits to the area covered by the local authority undertaking the scheme. That is because schemes may be on the border of another local authority, or may benefit those in a larger travel-to-work area. It is right that all the benefits to a wider area should be taken into account, especially when only one local council is bearing the loss of business rates.

If a scheme proposed by a local authority was deemed to have a social and economic benefit, the Secretary of State could agree that the authority would receive a safety net payment for the duration of the scheme. That would give the local authority certainty that its loss of business rates would be compensated for throughout the scheme, rather than it having to wait to see, each year, whether it had received a payment. That would encourage local authorities to go ahead with schemes that had real benefit, and would protect local services.

The new clause would also allow local authorities to make representations to the Secretary of State once he had notified them of his decision, and prior to a final determination being made.

I think I covered that point in my opening remarks, but the sort of thing that I am thinking of is redevelopment of a city centre. I cited my home city of Derby. There are many similar examples of schemes that required significant disruption; there is Birmingham, and many other cities—too many to enumerate. That is the type of thing I am referring to when I talk about major redevelopment.

Would the term “major redevelopment” be based on the proportion of business rates that were to be lost? If a redevelopment resulted in a small reduction in business rates, that would perhaps not be classed as a major redevelopment, whereas a smaller redevelopment could result in a bigger loss of business rates.

That is a fair point, and where development was not significant, there would be little point in applying for a safety net payment. Local authorities would be in the best position to judge in what circumstances they would apply for such a payment. I think that we know what we mean when we talk about a significant, major development of a city centre. The sort of scenarios that we are envisaging, would involve not a small redevelopment of a tiny corner, but a significant development of a city centre.

As I said, the new clause would allow local authorities to make representations to the Secretary of State. That is only fair to local authorities. If they believe that the benefits of the scheme were not properly taken into account, or if calculations relating to it were incorrect, the new clause would allow them to say so. That would promote good governance and good decision making by allowing local authorities to mount a challenge. The final decision, of course, would be left with the Secretary of State.

The new clause tackles an issue that was not really considered during the drafting of the Bill, but is vital for a number of councils across the country, so we are minded to divide the Committee on new clause 2, and we look forward to hearing the Minister’s views on it.

It is always a pleasure to serve under your chairmanship, Mr Robertson. I want to speak in support of amendment 48 and take this opportunity to ask the Minister to meet me and colleagues from the west midlands, and members and officials from the region’s fire authority, to discuss how our fire service is funded. I reiterate the remarks made by my hon. Friend the Member for Derby North (Chris Williamson), who asked the Minister to consider the case for safety net payments to be made where funding would otherwise be below that required by a force to follow the integrated risk management plan.

The Prime Minister promised that front-line services would be safeguarded, yet the services that my constituents receive are being affected as a direct result of the way in which fire services in the west midlands are being funded and of the cuts and savings being made. I am worried that, as my hon. Friend said, there is substantial risk of some authorities having less funding than is required to fulfil their duties. I want to talk a little about the situation in my constituency to illustrate those concerns.

When Sedgley fire station closed three years or so ago, the station in Dudley got an extra targeted response vehicle, in addition to its two engines. Under new proposals set out by the fire authority, one engine will go, and the TRV will be replaced by a brigade response vehicle—an adapted Range Rover—leaving the town of Dudley, despite its size, with one engine and the new response vehicle. When Sedgley closed down, the authority said that parts of Sedgley would be covered by fire engines from the Tipton station, but that is to lose an engine, too.

All fire and rescue services were expecting cuts as part of the comprehensive spending review settlement, and had been planning well in advance to protect the service provided to their communities, but the cuts have presented some with more of a challenge than others.

Is my hon. Friend aware of the situation facing the fire service in Cleveland? Teesside is the biggest fire risk in Europe, yet it faces similar cuts. Cleveland has some innovative ideas for cutting costs, and it has done extremely well—I am proud of what it has achieved—but it has been asked to go too far. That is perhaps all the more reason why the amendment needs to be accepted. There should be proper safeguards in place in the highest-risk area in Europe.

Order. May I ask the hon. Gentleman to come back on to the amendment? We are not here to talk about fire services.

Absolutely, Mr Robertson, but the point that my hon. Friend makes is accurate. It is clear that fire services are not funded fairly; that is the point I want to make. Some forces, such as the one in the west midlands, face more challenges than others. It is important that an amendment like amendment 48 be considered, so that we can make up for the shortfall in funding that some forces receive. If you will allow me, Mr Robertson, I shall set out why I think we are in this situation.

It is clear that the way in which funding is provided to fire services is not fair. In October 2010, the Chancellor announced an average cut of 25% to fire service formula grant over the next four years. That settlement was expected to be tougher for those services, such as West Midlands and Cleveland, with a heavier reliance on formula grant, but we were told that it would be fair. When the exact figures were announced for each service, it was immediately obvious that the cuts were anything but fair. Some forces have been handed increases in their formula grant, and clearly would not need the benefit of amendment 48, but others, such as the West Midlands fire service, face severe cuts.

Looking at revenue spending power, it is clear that the West Midlands fire service was hit hardest of all, with cuts that were twice the national average. Even taking into account the effect of the proportion of council tax to grant, and the small special grant to encourage a council tax freeze, some brigades—such as Cheshire, which happens to cover the Chancellor’s constituency—will receive more money in formula grant in 2012-13 than they did in 2010-11. Cheshire is getting more than £400,000 extra in formula grant, Essex is getting an extra £700,000, and Hampshire an extra £800,000. As a result, Cheshire’s total increase in revenue spending power between is 1.84%, or £800,000 extra in cash. When it comes to the fire services, it is absolutely clear that we are not all in it together.

The formula ought to be reviewed to take local factors into consideration. The failure to do that makes the case for special safety nets even more compelling. The formula used to decide on the settlement does not take into account a number of key considerations. For example, many of the most deprived areas are among the worst hit, despite the well established link between deprivation and fire. Four of the five most deprived fire authority areas in the country are metropolitan brigades, and those currently have to find the heaviest savings. Their financial positions are the most difficult.

Part of the reason that we stand to suffer most in the west midlands is that we maintain the lowest council tax precept in the country, at just £47.83 for a band D property, compared to as much as £87 for people in County Durham. We are therefore much more heavily reliant on formula grant than others and receive a greater cut in our overall spending power.

My hon. Friend makes a pertinent point about the way that metropolitan fire authorities in particular are funded. He will know that, similar to the situation in the west midlands, Greater Manchester fire and rescue authority is making £4.6 million of savings this year. For the next two years, depending on which scenario one looks at, there could be between £8.6 million and £16.7 million of savings—very substantial reductions in spending power in an area of high risk. Does he agree that it is crucial that we make it clear to Ministers that we expect a fairer mechanism for funding metropolitan fire authorities?

Of course, Mr Robertson, but to understand the case for the safety net payments, it is important to look at the way in which fire services are currently funded, because that demonstrates the need for those safety payments.

I take the hon. Gentleman’s point, but I think we will go back to the safety net, if that is all right with him.

Indeed, Mr Robertson. It’s a fair cop, I suppose. I shall draw my remarks to a close. It is clear to me that the West Midlands fire service is making all sorts of reforms, more savings in the way the force is managed and run, and cuts to services too, which many other forces around the country are not having to make. It is faced with the prospect of even more severe cuts over the next couple of years. It is not at all clear how it can make those cuts without a huge impact on the services that it provides to people in the west midlands.

Will the Minister meet me, colleagues from the region and representatives of the fire authority to discuss whether a fairer distribution of resources would safeguard services such as those in Dudley? As I said at the outset, will he consider the case for the safety net payments to be made where funding would otherwise not allow forces to meet the integrated risk management plan?

I shall speak in support of amendments 30, 31, 32 and new clause 2, but before I start, I seek your guidance, Mr Robertson. I referred earlier to the Cleveland fire authority. Perhaps I ought to have declared the fact that my wife, Evaline, is a member of the Cleveland fire authority.

Thank you. I so declare, so that people do not think it is my wife’s individual management that has led to the improvements. She shares my anxieties about the cuts that the fire brigade faces there.

I am by no means against reforming the way in which local authorities and central Government work together to collect and distribute tax, or the various mechanisms put in place to protect the system, but I recognise that the current system has its flaws. It is vital that the systematic inequalities in the country are addressed. The provisions suggested by the amendments do that. The Bill fails to recognise the simple fact that different councils must be provided with different levels of resource to meet different needs in order to prevent any form of postcode lottery, which would otherwise exist in the provision of services.

The amendments put a clear requirement—not “may”, but “must”—on the Secretary of State to take specific actions to ensure that all councils are provided with clear regulations within which they must work, and the Government as well, and allows councils the specific right to challenge. New clause 2 provides a comprehensive safety net for local councils which find, as others have described, that a major redevelopment scheme results in a substantial loss of non-domestic rate income for a period exceeding one year. Without specific powers—it is so important that they are specific—and requirements for the Secretary of State to intervene, I fear that countless councils, including those in north-east England, could be left high and dry and unable to continue to provide the range and depths of services required by our communities.

It is no good the Secretary of State having a series of discretionary powers in this area. He must be able to intervene to avoid wide-scale financial hardship which would leave local authorities no option but to slash services. Councils’ differing ability to generate business rates must be taken into account. Many local areas with vulnerable economies require support and Government investment in their infrastructure if they are to grow, particularly in the north-east, where the investment and growth that took place as a result of the positive intervention by the Labour Government are being reversed. The need for councils’ differing ability to be taken into account is recognised by the Tory-led Local Government Association, which strongly advocates the incorporation of safeguards to help authorities that raise relatively low amounts of business rates.

No one would disagree that there is substantially greater need in the north-east because of pressures on local services and smaller commercial and business areas. For example, in my Stockton North constituency there are several times more children on free school meals than in Wokingham, and our local authority faces around double the cost of providing residential and nursing care. Despite the diversification of the north-east economy under the Labour Government and considerable action on health and poverty, which saw the gap in life expectancy narrow, sadly the region still has about 33% of its population living in the most deprived areas of England.

Unemployment is also disproportionately impacting on the north-east, standing at 11.7%, compared to a national average of 8.4%. In my constituency, the local government finance settlement has already determined that Stockton council will receive £77 million in the current financial year. That is a 12% reduction on 2010-11 and higher than the average English reduction of 11.1%. Going forward, the 2012-13 settlement is to fall further by 8.8%, compared to 8.2% across England, so we need the safeguards proposed in the amendments.

Such a significant reduction in income means that councils such as my own in Stockton would no longer be able to provide the same level of public services in their area by charging a similar rate of council tax. They would inevitably have to make deeper cuts in their budgets, thereby putting greater pressure on the delivery of the most essential local services, exacerbating the inequalities that unfortunately plague this country and are worsening under the coalition Government. It should be emphasised that the previous Government made significant gains in bridging the equalities gap in Britain. The north-east especially benefited from a proactive Labour Government, determined to improve the prospects for the whole country.

Based on gross value added per head indices, the rate of growth in the north-east went from being the lowest of the regions during the 1990s to being the second highest during the past decade. Employment growth between the mid-1990s and the 2008 economic downturn increased by 11.2%, compared to 9.2% nationally. Despite the common view that the north-east had become over-reliant on the public sector at the expense of the private sector, between 2003 and 2008 private sector employment rose by 9.2%, whereas public sector employment grew by only 4.1% during the same period. Between 1999 and 2007 the number of north-east businesses rose by 18.7%, just a fraction below London’s business growth of 19.6% for the same period. What a testament to the work of our regional development agency and local authorities in the north-east.

Unfortunately, that hard work is being overturned by a reckless coalition Government, and we need the Bill to address that. One of the Government’s first actions was to abolish One North East, our regional development agency, and the regional Ministers, who had played an important role working with the private sector on large-scale investment programmes. The net effect has been a two-thirds cut to regional development funding and the establishment of a much smaller national fund to which every region must compete for investment.

I am sure that my hon. Friend would agree that One North East was regarded across the country as one of the most successful RDAs, which shows just how stupid the Government’s blanket removal of RDAs was.

I will talk instead about PricewaterhouseCoopers, which evaluated the work of RDAs between 2002-03 and 2006-7 and demonstrated their role in improving economic output from investment. Its report showed that every £1 invested over the period achieved at least £4.50 in economic output. They were extremely successful, yet now we are seeing the reverse. That is all the more reason why we need specific powers for the Minister to intervene and make up for the bad times when investment falls and companies leave the region. The diminishing opportunities in the region mean that a safety net is required all the more to protect our services. To localise business rates in the way the Government propose and create a system that would threaten the already uncertain future of the north-east’s public services at a time of high unemployment, greater deprivation and child poverty, an ageing population and worsening health inequalities is simply madness.

We still need something similar to the organisations that you, Mr Robertson, said I should not refer to, in order to provide a comprehensive, holistic and proactive means of creating growth in deprived areas. Local enterprise partnerships, working with local councils, must be provided with the proper means of attracting investment and creating the jobs our people need. Without that, regions such as the north-east will simply not have the opportunities to grow their businesses and their commercial base, yet the Bill fails to address the likely need for intervention when real growth eludes certain parts of the country and the powerhouse of the south-east ramps up investment and income from non-domestic rates.

Instead, the Government are introducing a system that will increase inequality and, frankly, is insulting to local authorities because it relies on the assumption that they are currently apathetic about growth in their areas. Local councillors would cut off their right arms to create jobs and investment in their areas, and if the Government think that some kind of overnight entrepreneurial revolution will take place as a result of the Bill, they are simply being foolish.

Any discussion of local authority finances must also include the differing ability to generate council tax revenue. The proportion of properties in different council tax bands varies widely from one area to another, making a significant impact on a council’s ability to raise revenue. The Association of North East Councils has calculated that localising business rates will result in the top 10% most deprived areas losing four times as much in spending power as the least deprived 10%. The north-east will experience an average cut in per capita spending power between 2010-11 and 2012-13 of £120, whereas the south-east will receive a cut of £31.

In his first Budget, the Chancellor promised to create

“an economy where prosperity is shared among all sections of society and all parts of the country”.—[Official Report, 22 June 2010; Vol. 512, c. 167.]

However, for those trapped in some of the worst hit areas in 2012, former Chancellor Geoffrey Howe’s “managed decline” might sound like an entirely apt description of the Government’s approach to local government. They must think again and accept the amendments if they are to have any chance of realising the shared prosperity vision that they claim to have.

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.

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.

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?

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.

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.

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.

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.

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?

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.

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.

I accept that when we draw up the regulations we should not reach a situation in which genuinely desirable and major redevelopment schemes end up perversely penalising a local authority, so I take that point. As I said on our first day in Committee, however, we have set up an official-level working group—with officials from my Department, representatives of local authority associations, treasurers, the valuation industry and so on—that is due to start meeting this month, so it will meet during the passage of the Bill, and I have specifically asked the group to look at the issues that such major redevelopments raise. In the light of that, and given that we are prepared to reflect on the group’s work and report to us and, if need be, to return to a means of dealing with the issue that the hon. Member for Derby North and I have identified, I hope that in due course he will feel able not to press the new clause to a vote.

In view of the shortage of time, and with the leave of the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 33, page 25, line 34, at end insert

‘Any such distribution must be made on the basis of the level of need in any local authority receiving a payment as defined in Schedule 1.’.

With this it will be convenient to discuss the following:

Amendment 34, page 25, line 38, after ‘distribution”)’, insert

‘including the level of need in any local authority as defined in Schedule 1’.

Amendment 35, page 26, line 19, leave out from ‘made’ to end of line 22 and insert

‘within the following financial year’.

It is a pleasure to serve under your chairmanship, Mr Robertson.

With these amendments, we return to our discussion about ensuring that any local government finance scheme takes account of the varying level of need in our communities, a problem that the Government seem determined to ignore. Interestingly, the Bill does not lay down the basis on which the Secretary of State must distribute the whole or a part of the remaining balance on a levy account at the end of the year, if he decides to do so. That is the problem with the Bill: too much of it is left opaque; too much is unspecified. Even Ministers have difficulty explaining it properly.

I cannot remember whether it was the Secretary of State or the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), but on Second Reading a Minister was reduced to reading out the explanatory notes when asked to explain the Bill in plain English, but we do know that embedded in the Bill is a blind refusal to address need. It is there in the use of the current financial settlement as the baseline, which, as the Yorkshire and Humberside councils said, means that baselines may not reflect the actual funding that councils need to deliver services to their local communities from April 2013. It is there also in the Government’s refusal to put anything in the Bill about need being taken into account when determining central and local shares; and it is there in the Government voting against our amendments to ensure that need was debated alongside local government finance reports.

It is all very well for the Prime Minister to talk about caring capitalism, but as we debate this Bill we do not see much care for the needs of the elderly, for children, for the working poor or for any of those who rely on local government services. Tory Members ignore it; Liberal Democrat Members weep crocodile tears and then troop into the Lobby after their Tory masters, anyway.

We see the same mindset operating when we consider the distribution of the levy balance. It is open to the Secretary of State not to distribute it at all, and we accept that there may be times when the levy needs to build up from year to year in order to fund safety net payments. If he does decide to distribute it, and it is nice to see the Secretary of State in his place, we will be back to the “all-power-to-Pickles” scenario. There is nothing in the Bill to stop him doing as he likes. What will his decision be based on—on whether he once had a nice day out somewhere, or the fact that an open space was named “Pickles park” in his honour? I cannot see many local authorities represented by Opposition Members getting money on that basis.

In Warrington, we have an Attlee avenue and a Bevin avenue. When the noble Baroness Thatcher was in power, the council even named one of its buildings “Poll Tax house”, to remind people of how the payments that they made had been imposed on them. That is a salutary reminder of how the last time they were in government, the Tories got it so wrong on local government finance. I cannot see us having a Pickles avenue, a Neill nook or anything else that might get us money on that basis.

My hon. Friend’s constituency is rather moderate; I have Marx, Engels and Lenin terraces in my constituency. It is clear what the Secretary of State will do—exactly what he did last year in the local government settlement. He will reward councils in the south-east of England that vote Conservative.

That is interesting; I suppose that my hon. Friend could think about a change of name to get money for his local authority, although I doubt that that would serve him.

The fundamental problem with the Bill is that too much discretion is given to the Secretary of State and there is no consideration of need. Without the concept of needs-related payment in the Bill, the Government cannot pretend that they want to protect the most vulnerable. Clearly, they do not. The amendment is yet another that tries to address that huge omission.

Wherever we look, we see evidence of the real disparities between different areas. Many examples have been cited in this Committee, but it is always possible to find more. In Knowsley, for example, 58,000 people—more than a third—live in areas that are among the top 5% most deprived in the country. There has been a 47% increase in social services referrals, which the council has had to deal with following the baby P case. In Sunderland, 50,000 people live in areas that are in the top 10% of the most deprived in the country. In such areas, councils face enormous problems in attracting new jobs and meeting service needs—despite their constant efforts to do so, which have often been denigrated by Government Members during this debate.

Does the Bill shed any light on the Government’s decision to penalise Liverpool—the most deprived authority in the country—to the greatest extent among all local authorities? Does my hon. Friend see any way of changing that in the context of the amendment that she is discussing?

My hon. Friend, herself the former leader of a major local authority, makes a fair point. It is what we have been debating throughout the Bill. Everywhere we look in it, we see no consideration of need; the poorest local authorities are being penalised most at every point.

We have said that the Bill does not recognise the barriers to growth that some areas face, such as the lack of appropriate transport infrastructure or of surplus capacity, as my hon. Friend will know from Halton, near her own area of Liverpool, for example. Everyone seems to accept that some growth happens simply because of where it is. Add to that the fact that councils also face a 10% cut in money to fund council tax benefit and we see that there will be real pressure on many local authorities. They will face having to cut benefits for some of the poorest people, having to cut services or having to raise council tax. We all know how difficult it is going to be to raise council tax. The result of the changes is that stronger local economies will find it easier to grow while others find themselves caught in a trap of rising demand and declining resources.

My hon. Friend mentioned Knowsley. Does she accept that the problem is not just current, but stretches out into the future? My information is that from 2017-18, wealthier authorities will begin to see real-terms growth in resources, yet Knowsley will still face year-on-year reductions in resources of more than 5%. After 10 years, it will still have reductions of 3.8%. If what we are discussing is wrong now, it will become progressively more wrong as the years go by.

My right hon. Friend has hit on the key to the Bill. It is not simply wrong in the beginning; it will increase inequalities—get more and more wrong—as it proceeds.

Inequalities will widen, even if the top-ups and tariffs are uprated by the retail prices index, and the levy will not fully compensate for that. Remember that even if we get a proper definition of what constitutes a disproportionate gain—bearing in mind the earlier debate, that seems unlikely at the moment—councils need to pay only a proportion of that in levy. The logic of that is that some areas will benefit from disproportionate growth. Others will fall further behind.

All my hon. Friend’s argument supposes that the starting point was fair. Of course, an awful lot of authorities will have had deep and damaging cuts locked into the baseline, which is the real starting point, and would not have the ability to raise additional council tax income even if they were permitted to do so by the Secretary of State. There is a real double-whammy for those areas. That is why we need a fair assessment of need, so that we can get our share of resources through that route.

My hon. Friend is right, and many hon. Members have made that point in our debates on the Bill. It starts from an unfair baseline and totally ignores the different council tax bases that authorities have.

We believe that any distribution of the remaining balance on the levy account—if the Secretary of State decides to distribute; he does not have to—ought to be done on the basis of need. Without that and the amendments that we have tabled elsewhere, there is a real risk that services will be put at risk by factors entirely beyond a council’s control, as the Government transfer financial risks to it, but keep the power with the Secretary of State. That is why throughout the discussion we have been trying to ensure that the concept of distributing resources according to need is built into the Bill.

My local authority is bracing itself not only for the cut; it will have to put further moneys aside for the risk element. The economy and incomes may not decline, but the authority has to set aside a further amount of money for risk and that exacerbates the problem.

That is an important point that we have not considered so far. I believe that local authority finance officers, because of the risks and uncertainties inherent in the Bill, will advise their authorities to build up bigger reserves. Authorities have been criticised by the Government for holding too much money in reserve, but the Bill almost incentivises a prudent authority to do that.

If an authority did that—it would be prudent financial management—it would be named and shamed, a tool that the Secretary of State uses on many occasions. It would be said that somehow the authority could redistribute that money and keep down council tax.

Clearly, prudent councils will set sums by against risk. The central problem with the system is its unpredictability and volatility. To make provision against risk, one has to be able to quantify it. That is highly uncertain. For instance, how would the treasurer of Brentwood council—the Secretary of State’s local council—have been able to anticipate a drop of more than a third in the business rates revenue last year? It was probably due to factors beyond their control, and they would have been unable to hedge against and provide for that sort of risk.

My right hon. Friend is entirely correct. Local authority finance officers will no doubt respond to this by always working on the basis of the worst possible scenario and therefore by building up more reserves than they may need. Government Members claim that they support distribution on the basis of need, which is not a difficult concept. Why, then, are they so opposed to including it in the Bill?

We have localisation not only of national non-domestic rates but of council tax and housing benefit, so local authority finance officers will have to put aside risk money for all three. It is a triple-whammy, and that is putting councils in a very difficult position.

Indeed, that is absolutely right. As we have said many times during these debates, the Government are centralising power and devolving blame so that local authorities will have to take all the risks.

Why not include our proposal in the Bill? The only real answer is that Ministers do not want to be constrained in how they use the money. I entirely accept that it might be necessary to carry over the balance if the account is to be sufficient to fund safety net payments, but if the balance is to be distributed, what is wrong with being clear about the factors that should be taken into account? If the Government reject the amendment, it will be clear that they want simply to collect the money and allow the Secretary of State to distribute it in any way he likes. There will be no fairness in the system and no real account taken of the needs of the poorest people in the poorest communities.

Amendment 35 also deals with how any remaining balance in the levy account is distributed. As the Bill stands, the Secretary of State may decide to distribute the remaining balance to one or more local authorities. In amendments 33 and 34, we set out exactly what factors he should take into account. Strangely, however, even if he does decide to make a payment, he does not have to hand it over. The Bill gives him the authority to pay whenever he likes and to pay in instalments if he wishes; I do not suppose that they would come with interest. What on earth is that provision for? We would not expect anyone else to be treated in this way. If I bought some furniture from someone and said to them, “I’m going to pay you, but I’ll do it when I like, in as many instalments as I like”, I would find myself rapidly being sued for the money and would not have a defence. This is another “Trust me—you know it makes sense” clause, whereby the Secretary of State can say , “I’ll distribute the money any way I like.” He seems to believe that he can treat local authorities in that way by deciding to pay out the remaining balance on whatever basis—we do not know—and as and when he thinks fit.

That goes back to the nub of the problem from an earlier debate—the lack of certainty that is given to council treasurers in enabling them to plan ahead in their council budgets.

My hon. Friend is entirely right. Time and again we find in the Bill a lack of clarity and lack of certainty for local authorities.

How on earth can this be the right way to deal with local services? Local authorities need to be able to plan and to have a degree of certainty in their finances, yet here we have a recipe for uncertainty. Our simple amendment would require the Secretary of State, if he decided to make a payment, to hand over the money within the following financial year. Such a provision would give ample time for him to do the calculations, or at least get someone else to do them, to determine the amount to be paid and to hand it over. Local authorities would then be certain about what they were receiving and when, and, importantly, they would be given more certainty about how the scheme would operate.

I will be interested to hear the Minister’s arguments against the amendments. Does he believe that if local authorities know they are going to get a payment and when, they will blow it all on riotous living—that they will decorate their town halls with bunting and order large shipments of chocolate cake—or does he believe, as we do, that they will use it to improve services? His arguments can mean only two things: that he expects local authorities to behave irresponsibly, which is like saying to children, “You can’t have your pocket money all at once because you might spend it all on sweets”, or—I think this is the real reason—that the Treasury wants to hang on to the money.

Local councillors deserve better than that. They are our partners in delivering services. They should be given as much certainty as possible and trusted to act responsibly. The amendments would achieve that, and I commend them to the Committee. It might be helpful, Mr Robertson, to let you know that we will seek to divide the Committee on amendment 33.

It is a pleasure to serve under your chairmanship again, Mr Robertson.

My hon. Friend the Member for Warrington North (Helen Jones) used a good analogy when she said that this measure is intended to centralise power but decentralise blame. Local councils will be given options over, for example, a 10% cut in council tax benefit. They will face some difficult decisions about how that is to be distributed. When the Minister wrote to Newcastle’s The Journal last year, he did not even mention that in his supportive letter on the letters page. We need to be clear to local people that this is not about decentralisation but about putting power back into the hands of the Secretary of State and, ultimately, those of the Treasury.

We had an interesting discussion on the previous group of amendments about whether there would be any money left to distribute at the end of the year. The hon. Member for Bradford East (Mr Ward) asked the Minister what would then happen, but he did not answer. I suspect that this mechanism is being used so that the Government can use local government-raised finance to offset central Government expenditure. It might be given back to local authorities, but only as a substitute for other types of grant. It is all about centralisation.

In the settlement of the accounts in the first few months of the coalition Government, the Secretary of State was the first Minister to run to the Treasury saying, “I’ve got my plans and I’ll give up my savings to meet the Chancellor’s targets.” If he again finds himself with a large pot of money left at the centre, no doubt he will offer it up to get himself some credence in the Treasury and in the eyes of the Prime Minister as the Secretary of State who is doing best in financially managing his Department, even though the pain of that is being borne on the shoulders of local businesses and local people.

My hon. Friend makes a good point about offsetting Government expenditure and local expenditure through raising the levy and taking local taxes. Could Jobcentre Plus be an example of where the Government might look to spend local money on what is now essentially a national service given the changes in the delivery of housing benefit?

I think that this Secretary of State will be very creative. He will no doubt put out a press release saying that he is giving money to local councils and various initiatives, without telling them that it is their own money. The difference is that he will now have control over how the money is spent, rather than the local councils.

My hon. Friend the Member for Warrington North asked on what basis money will be redistributed. The Government’s track record shows that they do not recognise need as an element in the redistribution of capital. We need only look at last year’s local government settlement to see that.

As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, the baseline will be set for the next 10 years, so councils will not only lose out in the first year but will continue to lose out over the next 10 years. County Durham’s revenue spending power for 2011-12 is £498.2 million, which is a reduction of £35.9 million or 6.73% of its budget. It will see a further reduction of £10.94 million in its spending over 2011-12 and 2012-13, which is a further loss of 4.5%. That will be used as the baseline. This will continue, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, for ever more.

Which councils did the Government reward in the settlement? They rewarded southern councils with far lower demands on local government services than councils such as Durham county council. I do not think that that was done by accident.

My hon. Friend is making an interesting point. I commend to him a study that produced a heat map showing the areas that face the largest cuts in local government funding. If that is superimposed on to a map showing the most deprived areas and the areas of greatest need according to socio-economic data, the two maps marry up quite well.

My hon. Friend makes a good point. One of the very deprived local authorities that the Government were determined to help last year was Wokingham in Berkshire, which saw its budget increase by 0.2%, meaning that every person there has had an additional 30p spent on them.

We must take need into account. There are services that County Durham and northern cities need. For example, County Durham has a growing population of elderly people, who are high users of services. Added to that, we have the Government’s reduction of the public sector and deficit reduction strategy, which are affecting the economic viability of regions such as the north-east of England. More individuals will therefore use local councils’ services. More people will certainly become eligible for council tax benefit as unemployment rises. Need has to be an important element in redistributing this money.

We are leaving it up to the Secretary of State to decide how the money will be distributed. In the last debate, the Minister failed to define “significant”. He used the word on several occasions and was pressed by Members on both sides of the Committee to define what it meant, but he could not come up with an answer. We are again being asked in the Bill to trust the Secretary of State. It will not come as a great surprise to hon. Members that I do not trust the Secretary of State. He is a very political individual who is clear in his philosophy: he will help people who support the Conservative party at the expense of northern councils. He does not care whether those councils thrive or not.

Although need is not part of the assessment, let us look at some of the figures. In County Durham, 31% of people live in the 20% most deprived areas of the UK, and 22,805 children, or 21.8% of children, live in households that are defined as living in poverty. In Wokingham, it is just 7% of children. Between January 2011 and January 2012, unemployment in the north-east rose by 19%. It now stands at nearly 12% across the region. As I said earlier, as unemployment rises, the demand on local government services increases, just when the ability for councils such as Durham county council to raise finance is being constricted.

We are having to second-guess what the Secretary of State will do. It would be helpful to have the regulations and to know exactly how he will distribute the money. It will be interesting to hear in his response whether the Minister puts any flesh on the bones and says how the money will be distributed.

I can imagine that there will be fights between different councils. If the Secretary of State says that deprived Wokingham should get a bigger slice of the pie than Knowsley or my constituency, without explaining or justifying it, I can imagine there being legal challenges. I would not put it past this Secretary of State blatantly to reward the councils that support the Government, just as he has already.

It was said on Second Reading and in Committee last week that the impression is being given that all councils up and down the country start from the same point on the journey in terms of need. No, they do not. There are big differences between councils up and down this country in their ability to raise domestic rates of council tax. In the north-east, about 50% of properties are in band A. Even the freedom that councils will have to raise additional revenue if they need to will be restricted.

In the last week, the Secretary of State has condemned councils for ignoring his generous offer of allowing them to freeze council tax. Again, that is a highly political move. He is very clever in one respect. He says that councils can take the gold for the next two or three years, but there is no guarantee that they will get it in the year before the next general election. No doubt, he will then force councils to stick up council tax or make further reductions in services. Things have been delegated to local councils, but the poisoned pill of a cut comes with them.

Looking at the whole Bill, it is clear that the strategy of the Secretary of State is to blame local councils for the decisions, while he stands back and says that it is not his fault. These are highly political moves. If he is guaranteeing that need will be taken into consideration, it would be better to put it in the Bill than to just give us an assurance and say, “Trust us.”

Given the suggestion of my hon. Friend the Member for Warrington North, I might have to suggest to Durham county council that it renames Marx terrace, Engels terrace and Lenin terrace in Stanley in my constituency. Perhaps one could be called Pickles terrace.

Yes, that has quite a ring to it. The council might have to do that to keep in with the Secretary of State.

I wonder whether my hon. Friend is aware of the fact that there was a residents group in Liverpool that had a battle with the city council over the right to name the local streets. They lived in an area called Weller streets. They won the battle, and in homage to the city engineer who had said that they could not rename the streets, they named one Weller way.

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.

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.

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.

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.

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.

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.

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”


“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.

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.

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.

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.

Schedule 1, as amended, agreed to.

Clause 2 ordered to stand part of the Bill.

Schedule 2

Amendment of provisions about revenue support grant

I beg to move amendment 65, page 36, line 42, at end insert—

‘(2A) In determining whether or not to pay a grant to any authority named above the Secretary of State must satisfy him or herself—

(a) that the resources available to any local authority (including payments made under Schedule 1 of this Act) are sufficient to meet the needs of the local authority, and

(b) that there has been no significant change in the circumstances of the local authority resulting in a substantial increase in demand for the authority’s services or for reductions in council tax.’.

The schedule removes the Secretary of State’s duty to pay a revenue support grant and replaces it with a power to do so. Like many measures in the Bill, how that power will be exercised remains opaque.

From the consultation, it seems that the Government propose to use discretionary grant more like a section 31 grant to meet new burdens on local authorities, but the point is that the power in the Bill does not say that. The power is given to the Secretary of State to decide whether or not to pay a grant and there is a real possibility of the gap between the resources available to a local authority and its need growing even further.

I have already quoted the concerns of Yorkshire and Humberside councils about how the baseline was set and the possible gap that will emerge by 2013-14 between the needs of a community and the resources available to it. Their view was expressed reasonably, but many local authorities’ justified fears of increasing gaps are much stronger.

The special interest group of municipal authorities, or SIGOMA, modelled outcomes based on business rates growing at about 4%, which is 1.5% above inflation; council tax growing at 2.5%; and inflation growing at 2.5% over the same period. On that basis, many councils will suffer a real decline in overall income in the first two years of the scheme, first because the increase in business rates will be taken by the Government, and secondly because all local authorities will suffer an absolute decline in 2014-15 as the funding available to local government is reduced overall in line with the Government’s spending review.

In fact, the autumn statement was clear that the Government are not on target to meet their deficit reduction programme until 2016-17, which is much later than first thought. Local authorities will find themselves penalised, because the Bill is clear that the system can operate only within the overall spending envelope set by that programme.

This change—from a system in which grant is paid to one in which there is a dependence on business rate generation—brings with it real concerns. Levy and safety net payments could mitigate some of the impact, but as we discussed earlier, we still do not know properly how the Government will operate them. We have seen no drafts, yet everything is left to the regulations.

As time goes on, the problems with the system will likely become apparent. The Government have failed to consider the different tax base of local authorities, especially because the council tax base does not feature in the Bill. The Government have nothing to say about their role in helping weaker local economies to grow and have shown repeatedly in the debate that they do not wish to take any account of need, yet it is precisely those weaker local economies that are most likely to face the greatest strains on their resources in the coming years.

We have mentioned several times the problem of child poverty. There is a real problem for councils with weaker local economies that need to deal with levels of child poverty in their areas that are well above average. Child poverty is 29% in Hartlepool, for example, and 27% in Liverpool. Those authorities have much greater problems meeting the needs of their populations than those with fewer problems, such as Surrey. But the charities working in this sector tell us that child poverty is likely to increase, rather than decrease, as a result of the measures that the Government are taking. Their cuts to housing benefit, their Welfare Reform Bill, and the cuts in council tax benefit that they are seeking to introduce in that Bill will all increase child poverty.

One example that may have slipped through the net is the increase in the hours needed to work to qualify for working tax credit. That measure alone will affect 200,000 families and is likely to put 400,000 more children into poverty. What will that mean for local councils? It will mean more demands on their statutory social services; more people moving out of private rented accommodation and requiring emergency accommodation, at huge expense to council tax payers; more people unable to pay their council tax; more demand for council services; and less ability to meet the demand.

Will my hon. Friend add to that list that, with a reducing income to pay for those needs, those authorities will have less opportunity to invest in business infrastructure to attract businesses—the inverse of what will be happening in the net beneficiary authorities?

My hon. Friend is right. Instead of a virtuous circle, authorities could end up in a vicious circle that spirals further and further downwards.

If we look at unemployment figures, we see the same problem facing particular local authorities. Unemployment is up 6.9% in Yorkshire, Humber and the north-west. In Denton and Reddish—my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) is not in his place at the moment—it is up 14.5%. In Derby South it is up 16.7% and in parts of Newcastle it is up by 14.6%. All of those are authorities that have already experienced huge cuts in their spending power under this Government and are likely to see further cuts in their resources as the scheme proceeds.

It is estimated that by 2016 the disparity between the richer and poorer areas will become apparent. After 10 years, which is when the Government propose to reset the scheme, the gap between the affluent areas and the poorer ones will be wider still. The Government have said that no council will lose out at the start of the scheme. What will happen in year three, year five and year 10? No one knows, but in the meantime the Government expect local councils to pick up the consequences of their failed policies, policies that are designed to hit the poorest people in the poorest communities. That is why we have tabled the amendment, which would provide that the Government, when deciding whether to pay a grant, must ensure that the resources available to a local authority are sufficient to meet its needs and that there has been no significant change in circumstances that has led to a significant increase in demand for services or reductions in the amount of council tax collected.

The second part of the amendment is designed to tackle the kind of problem that occurs, for example, when a major employer closes down—we discussed that earlier. What happens then is that unemployment leads to more demand for services from councils and a loss in revenue, because more people qualify for council tax benefit at the same time as the council has lost business rate income. How is a local council to cope with that under the system the Government propose? The council will lose rate revenue and council tax, and even if it is successful in attracting new businesses, they will not come in immediately. If, as is often the case, those new businesses are small and medium-sized, they will not generate the same level of business rate. Safety net payments will not kick in until the following year and we do not know whether they will be sufficient to replace the loss of income. We do not know, because the Government will not tell us the basis for their calculation.

The Secretary of State should use his power to pay a grant where there is a real gap between needs and resources. If not, we will see—we have made the point throughout discussion of the Bill—the gap between rich and poor increase. The motto of this Bill seems to be to them that hath shall be given, but that is not the way to run services, especially statutory services, in a civilised society.

Does my hon. Friend agree that it is grotesquely unfair that constituents in those poorer areas are paying for goods and services, the profits from which furnish plush offices and pay high executive wages in the likes of Westminster and the City of London? The poor are effectively paying the rich, because there are no head offices in deprived local authorities. Westminster and City of London will be able to keep those resources and that is grotesquely unfair.

My hon. Friend raises a point that I had not considered before, but he is right about that effect. Part of the problem in this country is that headquarters of major companies are often concentrated around London and the south-east, unlike many other economies, in which it is common for major companies to have their headquarters in the regions. There is huge unfairness built into the system that the Government propose.

I did not say that they were in every constituency: I said that they are concentrated in London and the south-east, which is a plain fact.

In any case, we do not believe that this is the way to proceed. If the Government do not take steps to tackle the gap—and those steps are not set out in the Bill—services in many councils will decline, while others are able to reduce, even abolish their council tax as time goes on. We will therefore seek to divide the Committee on the amendment later, and I commend it to my hon. Friends.

I rise to support my hon. Friend the Member for Warrington North (Helen Jones) on amendment 65, which encapsulates an important principle. The 2012-13 settlement, which will be used as the baseline for the new finance system that is to be introduced, has a number of problems that will affect areas such as Knowsley disproportionately—we have already heard examples from other areas.

It is important for Knowsley in particular—and I hope the Minister will comment on this when he replies to the debate—that the system is based on the damped allocations, including the grant floor, as that will lock £6 million in for Knowsley, which is a very important sum of money. The baseline also needs to consider the scale of cuts faced by some local authorities in the recent multi-year settlement which, as my hon. Friend has said, targeted some of the most deprived areas in Britain, including Knowsley. It is worth reminding the Committee that Knowsley’s cut in revenue spending power per head of population in 2011-12 was £156.09 compared with the average in England as a whole of £49.18.

If the Secretary of State were here for this debate, he would be sitting there smiling and might even be tempted to say, “The point we’re trying to make with this Bill is that local authorities such as Knowsley should go out and promote their businesses, get more inward investment and shore up the business rate, the benefits of which would offset some of these problems.” However, the difficulty is, first, that that does not address the fact that we cannot switch around economic activity in a given area in a short space of time. We can do it over time, and Knowsley has been quite successful in retaining major industries. Earlier I quoted the example of Jaguar Land Rover, which has remained in Knowsley; indeed, it has grown, with new products and a major recruitment programme last year. New businesses can also be attracted, which is what we did with QVC, a massive business, employing about 1,500 people in Knowsley, and a major contributor to the business rates of the borough. However, doing that takes time, and such changes cannot be made in a short space of time.

Added to that, the current difficulties that this country faces—I do not propose to get into a debate about their cause, although I am happy to do so if anyone wants me to—means that areas such as mine face more distress than would otherwise be the case. In turn, that will affect the needs of the area, which is why it is important that a provision such as that contained in amendment 65 should be inserted into the Bill. I want to give the Committee some information about the impact that not making such an amendment will have on areas such as Knowsley. Knowsley would support the commitment to uprating the tariffs and top-up by inflation under the proposed scheme—we talked about that earlier, but it is important that that should be included in the scheme when the Bill is enacted. At the moment, we are not entirely clear how all that will work or how it will affect some areas as compared with others.

However, what we do know, on the basis of the information that is available, is that under the Government’s proposals, local authorities such as Knowsley will be left behind by the wealthier authorities. Those authorities can easily recover from current reductions in resources—which is what took place in the comprehensive spending review—because they already have larger tax bases but we cannot will such a recovery instantly into existence in areas such as Knowsley. Areas with large tax bases find it easier to recover what has already been taken. Also, as I said earlier—although it bears repeating—the process will carry on. It is not as if it will last only one, two or three years. In the case of Knowsley, we will still face year-on-year reductions in resources of more than 5%. Indeed, after 10 years of the proposed system, we would still be facing annual reductions of 3.8%. This is therefore a serious matter for areas such as Knowsley.

I do not know whether the Minister has seen the excellent briefing that SIGOMA—the special interest group of municipal authorities—provided for MPs last week, but if he has not, I would very much commend it to him. That briefing shows the top-up and tariff updated by RPI on the current, known operation of the Bill. I accept that there is still some room for elaboration and illumination, but the briefing tells its own story. The authorities with the lowest funding growth are Liverpool with 21.9%, Knowsley with 21.9%, Bury with 21.1%, Wirral with 21%, and South Tyneside with 22.7%. Those statistics alone are fairly meaningless, unless they can be compared with those for other areas—this comes back to the wealthiest/poorest area argument. Guess which authorities, and where they are, will have the highest funding growth: the City of London with growth at a staggering 139.6%, Westminster with 90.7% growth, Hillingdon with 40.6%, Camden with 37.5%, and Kensington and Chelsea with 34.5%.

Therefore, when my hon. Friend the Member for Warrington North makes the point, which she made very effectively, that the most deprived areas are the most disproportionately affected, that is not windy rhetoric on her part—she is never one for windy rhetoric, and I would never dare make such a suggestion. Rather, it is based on fact. The available information, which has been provided by a range of organisations, including SIGOMA, shows that she is entirely correct in that assumption. The reason it is necessary to set out that background is that the amendment would require that needs, as they change over time, should be taken into account.

I will not rehearse all the difficulties that we face in Knowsley, because we have struggled with the problem, both under the previous Government and through the local authority, for many years. However, most of those problems and most of the needs that we want addressed through the local government finance system arose in the 1980s, when the industrial areas of Kirkby and the parts of Huyton that were based on industry collapsed. They collapsed because the economy was in a deep recession. There was high unemployment, reaching as high as 50% or 60% in some parts of Knowsley—staggering figures that it was almost impossible to deal with. The industrial base shrunk dramatically as a result of closures. For example, the Birds Eye factory closed in the late 1980s with the loss of 1,300 jobs, and we also lost major brand-name companies such as Hygena. That happened not because of anything that the work force did wrong or because those companies were burdened by red tape or excessively high business rates, but because of the economy and the recession at the time—I mentioned just those two closures, but I could quote a long list.

The consequence was that the needs of boroughs such as Knowsley grew enormously over that period. Indeed, the out-workings of those problems still exist today, in the form of a low skills base, welfare dependency, the poor health that is associated with long-term unemployment and benefit dependency, and so on—the list could go on and on. Indeed, my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) is now in his place, and there are parts of his constituency where the same problems exist. In fact, they exist on an even greater scale in some areas, as parts of his constituency were also former industrial areas. However, the argument that I am making, which is not unfair or unreasonable, is simply this. We cannot turn the clock back in areas such as Knowsley and expect business or those industries to be recreated at the same rate at which they retracted in the 1980s and early 1990s. It is a long-term project.

In the meantime, without that economic expansion, which is incremental, slow and difficult to manage, we still have those needs, which will be unmet unless the local government finance system works in such a way that there is redistribution from wealthier areas to those in the greatest need. We are confronted with the very reverse of that, however. The areas that will be the most disproportionately and adversely affected are those with the greatest needs, and those that will be the most rewarded and that can most easily cope with the changes are those with the fewest needs.

My right hon. Friend is making a powerful point about the needs of specific areas, and he is correct in saying that Liverpool, Walton now has, unfortunately, the fifth highest level of unemployment in the country. Liverpool as a whole therefore needs more support. How does he think the Government can justify the fact that, proportionally, places such as Liverpool have been hit the hardest and that Liverpool has had to take a cut of £141 million in the past two years?

I shall give my hon. Friend two possible answers to his question, and I shall leave him to decide which is correct. The first possibility is that the Secretary of State and the Ministers responsible for this Bill genuinely believe that areas such as mine and that of my hon. Friend have the capacity create to economic growth—a bit like turning on a tap—and to widen the tax base and increase the revenue that they get through the business rates. They might also think that we are not doing enough to attract new investment into our areas. My hon. Friend and I know that that is not the case, however.

The alternative answer was put forward in very explicit terms by my hon. Friend the Member for North Durham (Mr Jones) earlier. It is that these measures are a crude way of rewarding those areas that send Conservative and Liberal Democrat MPs to this House and penalising those that do not. To put it even more crudely than my hon. Friend the Member for North Durham did—although I am not entirely sure that that is possible—I think that the Government are rewarding their friends and penalising their enemies.

I am not standing here as the representative of the Knowsley constituency to cry crocodile tears or to wave around the levels of deprivation that exist there. Those are facts. This is not a question of sentiment or of special pleading. The reality is that, as a result of historical events, some of which took place at least 20 years ago, we have problems and, as a result, we have needs. Unless the Bill can satisfy me and the people of Knowsley that those needs will be taken into account when the grant formula is determined, the more bleak interpretation that my hon. Friend the Member for Liverpool, Walton drew out of me a moment ago will be the inescapable conclusion.

I hope that the Government will accept the amendment, either here or in the House of Lords, later in the proceedings. They must not fall back on the argument that we heard earlier, when they said, “Don’t worry, we’ll take all this into account in the regulations. It will all become clear then.” The risks involved are so great for my constituents and for the local authority in Knowsley that it is impossible for me to accept those assurances. I do not believe that they have been given dishonestly. I accept that they have been given in good faith, but I have been around long enough to know that promises made in the heat of the moment in Committee in response to concerns about specific provisions have a habit of getting lost in the ether later. We need clarity, but we need it now. Local authorities are expected to plan on a long-term basis to meet their needs and determine their expenditure on services. Without that clarity, we will find ourselves in a position, some years down the line, in which the worst possible interpretation that we can put on the Bill will be the nightmare reality.

The descriptions I have heard of myself today have varied enormously. The hon. Member for Birmingham, Erdington (Jack Dromey) described me this morning as a Leninist, and earlier in these debates the hon. Member for North Durham (Mr Jones) sought to name a street after me and suggested that I might be pickled. I want to respond to this debate using neither the extreme ideology of the left nor the extreme ideology of the right. I want simply to say that we have brought to the Committee a set of proposals to give local authorities control over their resources for the first time in 30 years, including not only their council tax but their business rates.

I can understand, and will respond to, the concerns that have been expressed about the precise details of the proposals. However, hon. Members will not be able to interpret correctly what we are doing if they make assumptions about an ideological direction, other than the ideology of localism, which involves getting decisions and money out of Westminster and Whitehall and returning them to town halls and local communities.

I cannot accept amendment 65, because it would place a requirement on the Secretary of State to undertake an unnecessary assessment of need, which could risk undermining our objectives to create long-term certainty for a strong growth incentive and to reduce local authorities’ dependence on central Government grants. Need is already incorporated as an important part of the system, and the different circumstances of authorities will be taken into account as the scheme is set up.

Has the Minister made any assessment of the risk management carried out by local authorities, and of how much money they will have to put aside as a contingency to deal with any liabilities or deficits that they might incur as a result of the Bill? That could involve housing benefit, council tax and non-domestic rates. Has he assessed how much money councils will need to bank as a contingency measure?

The hon. Gentleman’s point was raised in an earlier debate on the way in which local authorities will assess the risks that are inherent in any new proposals, and in these ones in particular. In my time, I have served on three different local authorities and with about eight different chief finance officers, and their approach to these matters was that although they might get a bonus if there was money in the bank at the end of the year, they would be likely to get the sack if there was none. The job of those who control local authorities—the democratically elected representatives—is to strike the correct balance between the risks calculated by a chief finance officer and the real risks in the real world. I hope that the hon. Gentleman will be a force for good in that regard, and that by the time I have finished speaking, he will see that some of his worst fears have been grotesquely exaggerated. I hope that he will understand that there are real opportunities for every local authority in England to benefit from the system that we are bringing in.

My local authority, Hyndburn borough council, has put away almost £1 million as a contingency for the next three or four years, mostly in anticipation of the passage of this Bill. Will the Minister comment on that, because it refutes the suggestion he has just made?

Actually, it confirms it absolutely. In another debate, the hon. Gentleman and I had an interesting discussion about whether he was receiving good advice from his council about housing policy and it transpired that he was getting very poor advice. If we were having another debate, I would ask him whether his local authority had now registered as a registered provider of housing, as it was failing to do so and was therefore losing out on opportunities for Government money. Given that fact, I would not necessarily accept that the decision it has taken to retain money in its accounts was based on the soundest available interpretation of its future financing.

Need is already incorporated as an important part of the system and the different circumstances of authorities are taken into account. I shall give some practical examples in a minute or two. Local authorities’ baseline funding levels will be set on the basis of the 2012-13 formula grant process. To pick up on the points made by the right hon. Member for Knowsley (Mr Howarth) about damping, floors, ceilings and so on, we consulted last year and asked consultees for their views on retaining damping. He will, perhaps, not be completely surprised to hear that the answers depended strongly on whether the writers were recipients of the benefit of damping. We have considered that carefully and we are minded to retain the current damping in the assessment of formula grants, so I hope that will provide some reassurance to him and to his local authority. I know, however, that there will be others in the House for whom it will be a major disappointment.

I shall take an intervention, but perhaps the direction these interventions are coming from will give the right hon. Member for Knowsley a little comfort.

Will the Minister explain to me why floor authorities that get extra grant above that determined by the formula through damping will be protected whereas councils such as my own on the Isle of Wight will not? Secondly, will the costs of concessionary fares and rurality on the island be properly accounted for?

I thank my hon. Friend for raising all those points. As I predicted, clearly a decision to retain damping benefits some local authorities and is to the disbenefit of others. The Government have announced their view and I am sure that my hon. Friend will find ways to express his disappointment at a later stage. On the other points, as my right hon. Friend the Secretary of State has made clear, the calculation of the formula grant figures will take account of new data, such as that from last year’s census, and will take a view on what might need to be done on concessionary fares and rurality. We have made that point, but nevertheless the foundation stone will be the formula grant figure for 2012-13, as amended by the measures in the points I have just made. The calculation of tariffs and top-ups will therefore be based strictly on that and will ensure that local authority funding at the outset of the scheme is in line with that assessment of relative needs and resources.

I thank the Minister for giving way, and this is a genuine question. Is it not true that the baseline funding will have taken on board the council tax base? Was that not reflected in previous formulae? An authority such as mine, for example, would naturally get less formula grant because of its council tax base.

My hon. Friend is right and I will bring some of the facts and figures to the attention of the Committee in a moment or two. I hope that will reassure not just her but Opposition Members about the impact of the scheme.

Once the baseline is set—for shorthand, let us say that it is set at formula grant level—it remains fixed in place and in amount, in real terms, until there is a reset. We have already said that that figure will be uprated by RPI to effect that. In advance of any reset, protections will be built in for those authorities that are less able to respond to the growth incentive. For instance, there will be the safety net payments we have already discussed, which will apply to any local authority that sees its income drop by more than a set percentage below its baseline funding level.

The Minister and his colleagues keep talking about the growth incentive, so will he now answer one simple question to which we cannot get an answer from any of his colleagues? What does he think local authorities will do differently under his scheme from what they do now? The point has been made again and again that most local authorities are constantly seeking to attract new jobs and new investment.

Similar questions were asked about the Government’s decision to apply the new homes bonus to empty homes. We were asked what possible difference that could make, but it has reduced the number of empty homes by 21,000 this year and, as I go around the country, I find that local authorities are, for the first time, seized with the importance and necessity of tackling empty homes because that is an income stream for them. That will definitely be the case with local authorities in this situation. Indeed, the Opposition have given some illustrations that suggest that they rather fear that it might. There have been questions about whether the measure will prohibit the redevelopment of sites if authorities cannot keep the business rate income coming in. Opposition Members see that the perception about receiving a business rate income will be a significant consideration for local authorities of all kinds.

It appears that the Minister is trying to advance the argument that that there are local authorities that are not interested in attracting inward investment. Can he name one?

I am certainly not going to name an authority that is failing to get its inward investment, but I invite the hon. Gentleman to frame his remark and revisit it in four years’ time, when he will see the results of the change we are introducing.

One of the central criticisms of the Bill has been based on a misunderstanding of what happens at the moment and a deep pessimism about what it is possible to achieve in the future. Let us look at the area of the hon. Member for Liverpool, Walton (Steve Rotheram). In the four-year period from 2005-06 to 2009-10 the average annual increase in business rates in Liverpool was 8.2%. It absolutely is not the case that Liverpool loses out by getting business rates instead of formula grant. The hon. Gentleman might like to ask the treasurer at Liverpool what the annual average increase in formula grant was at that time, because that is what we are comparing—formula grant that is delivered to Liverpool and dictated by Whitehall against a business rate income that is in Liverpool’s hands. As I have said, the increase in those four years was 8.2% and I challenge the hon. Gentleman to say that the outgoing Labour Government were as generous as that. Let us not automatically assume that because an authority has difficult and challenging circumstances it is not possible for it to have increases in rates or that that is not happening.

I will give way to the hon. Lady in a moment, but I want to mention Knowsley first. The right hon. Member for Knowsley has done a very good job of illustrating the challenges faced by his council and his residents. He made the point that he has a number of large employers and he has understandable anxieties about the possibility of extreme volatility that that introduces. However, in the four-year period I have mentioned, Knowsley had an annual average growth of 8.7% in its business rates. Again, I invite him to talk to his chief finance officer and find out whether the formula grant increase for Knowsley under Labour was higher or lower than 8.7% per year. I hope that gives yet another illustration that it is not necessarily the most challenged or challenging authorities that face the losses he fears from the transfer of decision making and money from Whitehall to the town hall

I need to make two points. First, when I spoke earlier I made the point that as far as I know there is no danger of the two companies I mentioned—Jaguar Land Rover and QVC—not surviving and prospering in future. I mentioned them merely as examples of the sort of investment Knowsley has been able to attract and I was not saying that the inherent volatility is likely to come about because either of them will close. Secondly, the Minister suggests that I should talk to the director of finance at Knowsley, but my speech was based largely on a discussion I have already had with the director of finance. Given the current circumstances, he does not think that the kind of investment we have been able to attract in the past can be guaranteed in future.

On the right hon. Gentleman’s first point, I agree and I am sorry if any of my remarks conveyed a different impression. He is absolutely right that the issue is not about the future of particular companies in his constituency. On his second point, it is a good idea for me to tackle this issue of need head-on, as the amendment is about need.