Report (1st Day) (Continued)
31: Schedule 1, page 25, line 7, leave out “audit” and insert “certification”
My Lords, in moving Amendment 31, I shall speak also to Amendments 14, 16, 17, 18, 28, 29, 30, 37, 38 and 50, which, taken together, ensure that the Bill provides for the appropriate assurance of calculations and information supplied under the business rate retention scheme.
Currently the Bill provides for the audit of calculations and information supplied under the scheme, and it should have referred to certification, so that the Government and the major precepting authorities have the assurance that they need about calculations and information supplied by the billing authorities and on which the payments to central government and precepting authorities will be based. This will then mirror what already happens under the current arrangements.
Amendment 50 removes an amendment to the Audit Commission Act 1998 that would have required the Audit Commission to have made the arrangements, if requested, for the certification of calculations and information supplied in respect of the new business rate retention scheme. However, with the proposed winding up of the Audit Commission as set out in the draft Audit Bill published in July, we need to provide for alternative certification arrangements. These amendments, along with the provisions in the Bill, will provide the necessary framework for the appropriate assurance of calculations and information for the new scheme.
With this explanation, I ask noble Lords to accept these amendments.
My Lords, I thank the Minister for her explanation of the amendments, but could she say a little more about what is perceived as the difference between a process that leads to a certification and that which is subject to an audit? Is it the nature of the judgment that is different, or is it what is being given assurance on that is different? What are we actually changing here and what is its outcome? I am not making an issue of it, but it would be helpful to have a bit more information as to why this change is being undertaken.
I think that an audit is carried out by an independent, external auditor and certification can be done by internal people just certifying that something is correct. I think that that is the difference. It is the difference between having something externally verified and signed off and having something done internally and signed off.
That is helpful. If we are saying that it is the status of the person who is making the judgment that is being changed here, I can understand that. It is whether the judgment being undertaken is of a different nature, given that it is not an audit but a certification, that I was unsure about.
It is not intended to be. That is why the amendments are quick and simple, slipping in the relevant words. I shall read the document that I have. I think that that will help the noble Lord enormously. We anticipate that the certification arrangements will be provided through a tripartite agreement. Under this approach the Secretary of State through regulations and directions will define the assurance requirements and produce certification instructions. At the end of the financial year the local authority will make the arrangements for the assurance to be provided, most likely by the auditor who audits the local authority’s accounts in line with the certification instructions. Therefore, I was half right and half wrong, if I am generous to myself.
Amendment 31 agreed.
Amendments 32 to 36
32: Schedule 1, page 25, line 10, leave out “or this paragraph” and insert “, this paragraph or Part 6 (funds) so far as applying to non-domestic rates”
33: Schedule 1, page 25, line 11, leave out from “a” to “does” in line 12 and insert “certified calculation or certified information”
34: Schedule 1, page 25, line 14, after “or” insert “certified”
35: Schedule 1, page 25, line 14, at end insert—
“( ) The regulations may confer power on the Secretary of State to give directions about the certification of calculations or information.”
36: Schedule 1, page 25, line 14, at end insert—
“Payments out of deduction from central share payments9A (1) The Secretary of State may by regulations make provision for a billing authority to make a payment for a year to one or more major precepting authorities of an amount equal to a proportion of the amount that is to be deducted in accordance with regulations under paragraph 7A from the billing authority’s payment under paragraph 6 to the Secretary of State for the year.
(2) The regulations may make provision about the administration of payments to major precepting authorities under the regulations.
(3) The regulations may, in particular, make provision in relation to payments to major precepting authorities of the same kind as the provision that may be made under sub-paragraph (2) of paragraph 9 in relation to payments to major precepting authorities to which that sub-paragraph applies.”
Amendments 32 to 36 agreed.
Amendments 37 to 38 not moved.
39: Schedule 1, page 27, leave out lines 37 to 40 and insert “in two equal instalments at six monthly intervals”
I do not intend to delay your Lordships too long on this amendment but I was intrigued by the subsection in the Bill which reads:
“A payment by the Secretary of State to a relevant authority under sub-paragraph (2) must be made—
(a) in instalments of such amounts, and
(b) at such times in the year to which the local government finance report relates,
as the Secretary of State determines with the Treasury’s consent”.
If the process is that flexible, all the money could be paid out on 31 March in any financial year. The amendment probes what the Government intend to do in terms of the payment. I am sure that the Minister is concerned about the Government’s cash flow but I am concerned about that of local authorities as well.
My Lords, I shall try to do better on this one. This amendment concerns the timing of top-up payments from the Secretary of State to local authorities. Top-ups will be paid to those authorities which at the start of the system receive less in business rates than their funding level. They will be set out in the draft local government finance report.
Our objective is to put in place a system of payments which is easy to administer and fair to local government. Currently, local authorities pay their business rates to the Government in 24 fortnightly instalments. That is a system which has worked well and is understood by local government and it may be that the same system of instalments would work well under rates retention. But if local government believes there are better options then we will, of course, consider them. That is why the summer 2012 technical consultation invited views from local government on how many instalments we should have under the new system.
We will continue to listen on how best to set up the payments system and study carefully the responses to the consultation. The Bill gives us the flexibility to adopt different payment and instalment arrangements in response to those discussions with local government whereas the noble Lord’s amendment would constrain us to two payments for the top-up. I do not think that that would support our dialogue with local government on this point but I hope I have given the noble Lord some assurances that the instalment arrangements we will put in place will reflect the views of local government. I invite him to withdraw the amendment.
Amendment 39 withdrawn.
Amendment 40 not moved.
Amendments 41 to 43
41: Schedule 1, page 32, line 27, leave out “paid” and insert “payable”
42: Schedule 1, page 32, line 31, leave out “paid to it for the year” and insert “of the amounts payable in respect of the year under those sections to the billing authorities that are required to make payments to it for the year”
43: Schedule 1, page 33, leave out lines 10 to 13 and insert—
“( ) if the authority is subject to a requirement imposed by a direction under paragraph 40 (direction to make calculations or supply information) or by or under regulations under paragraph 40A (regulations about calculations and supply of information) for the purposes of this paragraph, as soon as is reasonably practicable after the time for compliance with that requirement,”
Amendments 41 to 43 agreed.
44: Schedule 1, page 33, line 39, at end insert “, and
(c) whether the payment would be triggered by a fall in business rates of 5 per cent”
We now move to the safety net for local authorities. The Minister said earlier that this is a very significant matter and clearly it is for local authorities. It is recognised around the House that local government finance is going through a turbulent period and that there are likely to be movements of significant amounts while the pressure on local authorities continues to rise, particularly as regards adult social services, as my noble friend Lord McKenzie said earlier. The famous graph of doom is getting closer every time we meet. The Government have talked generally about a 10% safety net being accessible. However, given the discussion we had earlier and the fact that the review will not happen until 2020, we could have a local authority which suffers a reduction in its business rates of 9.9% in year one, would not therefore be eligible for any safety net mechanism and would have to run with that for a period of seven years. That is unsustainable in terms of supporting local authorities. As I previously argued, there is likely to be a lot of change, and we are now making judgments about what is significant in terms of a percentage. I should have thought, given the pressure on local authorities from central government in terms of reductions in spending and local delivery, that 5% would be a much more reasonable figure.
As regards my Amendment 46A, the issue is intriguing because we assumed when the Government introduced the system in the Bill that they would be funding it and the money would come out of central government because of the impact on particular local authorities. We are now led to believe that some of that funding will not come from central government sources but from local government itself. It seems somewhat bizarre that a system that is meant to help local authorities which are suffering from turbulence due to the current funding system are to be paid for by other local authorities. I hope that the noble Baroness can make it clear that the funding will not come from other local authorities and that central government will take responsibility for it. I beg to move.
My Lords, I shall speak to my noble friend’s amendments, and the amendments in my name and that of my noble friend Lord McKenzie.
My noble friend Lord Smith rightly referred to the concern about the threshold level above which protection would be given. I note that in the debate in Committee, the Minister said that the Government had been carefully considering these issues,
“together with the safety net support threshold in the range of 7.5% to 10% below baseline funding”,
and said that that offered the, “best combination on balance”. She went on to say:
“We will be consulting local government over the summer before any final decisions are taken”.—[Official Report, 5/7/12; col. GC424.]
It would be interesting to know what representations there have been and what progress was made during those consultations because, on the face of it, it looks as though the Government are still on course for that higher figure. My noble friend Lord Smith rightly pointed out the severe financial problems facing local authorities—a combination both of cuts in government grant and the rising demand for and costs of services. Many authorities will find themselves in an unprecedentedly grey financial situation. The noises outside suggest that the heavens appear to echo my sentiments.
The problem is shared by many authorities. I ought to declare an interest as a member of Newcastle City Council and, like others, I am an honorary vice-president of the Local Government Association. In Newcastle, we are contemplating reaching a position whereby we have to find £90 million a year by the end of a three-year period. That is £90 million every year, which is a significant proportion of the budget. Consequently, any diminution of resources from the reduction in business rate income would be a matter of even greater significance.
I shall endeavour to proceed despite the interesting background noise.
There is a serious question about the extent of the threshold and, as my noble friend rightly pointed out, there is another question about how it is to be financed. The assumption was that the Government would be meeting this cost, and it was a reasonable assumption. Indeed, that was the position put last year by a senior Treasury official in consultation with local government finance officers. We are now faced, apparently, with a safety net cut of £245 million. Originally, it was thought that that would be met from the Government’s AME contingency of around £400 million, topped up with some of the set-aside, which could have provided a potential £700 million. In addition to that source, the Government are, of course, sitting on around £600 million extra in business rates. I slightly anticipate the answer that the Minister may make in response to the question of my noble friend Lord McKenzie: that figure is the extra amount collected by councils for the department last year, and it will probably be more this year.
I am told that the noise we can hear from outside is due to fireworks. Guy Fawkes has obviously struck a little earlier this year, and we do not even have the music to go with it.
There seem to be ample resources within the Government’s provision to provide for any safety net payments due to authorities, yet, on the face of it, it looks as though local government is expected to finance them itself out of its share of the business rates. As my noble friend has pointed out, that is clearly unacceptable. I should be grateful if the Minister could elucidate the Government’s position and explain it if our conclusions on the way it is progressing are correct.
Amendment 49, like my noble friend’s Amendment 44, seeks to restrict the threshold to 5%, and we certainly support Amendment 46A in seeking to ensure that those payments are financed not by local government but from the Government’s share of the non-domestic rates, excluding any element of revenue support grant.
Amendment 50 is on a different issue. Hitherto in talking about the safety net, around the House we have assumed that we are talking about a situation where a factory closes, some other problems occur and an existing property no longer provides a contribution towards the local non-domestic rate income—that is, as it were, a safety net for a negative situation arising not as a result of a policy decision. On the other hand, Amendment 50 looks at the situation where properties become vacant and non-domestic rate income falls as a result of a policy decision involving a major redevelopment. Sites are cleared, buildings are demolished, rate income disappears—much as the noise, which has recently ceased—and, as a consequence, there is a loss, which could be quite considerable. Here, the purpose of the amendment is to seek a mechanism by which an application can be made to the Government for a safety net payment—not to compensate simply for a loss but to facilitate the redevelopment. In other words, it seeks to remove a disincentive for significant redevelopments, and it is in a rather different category from what might ordinarily be expected to arise when considering safety nets.
I hope that the Minister will look sympathetically at this suggestion because we obviously want to incentivise. The whole point of localisation, such as it is—I point out that it is not a complete localisation because the business rate levels will continue to be determined by central government—is that we are all seeking to incentivise economic development in particular. It would be paradoxical if local authorities beginning that process led to a significant loss of income, which might act as a deterrent to the development in the first place. The Minister might want to take that back rather than jump to a conclusion this evening, but it is a point which I hope the Government will bear sympathetically in mind.
My Lords, I congratulate the noble Lord on his coolness under fire. I heard most of what he said and I hope that other Members in the Chamber did as well.
Perhaps I may deal, first, with the consultation—which the noble Lord asked me about—because I think that it is most relevant to what I am going to say next. We have been consulting on the threshold over the summer. That consultation has only just ended. There have been 400 responses and so before we make an announcement on the level of percentage reduction, we need to look at those. That will happen later. At the moment, we are still sitting between 7.5% and 10%.
I thank the Minister for that. What will be the process? Will the safety net limit be prescribed by regulations so that we would then have an opportunity to debate it? Presumably the results of the consultation will be available for us to consider at that time, if not before.
The answer on regulations is yes. What comes out of the consultation will either be in the regulations or, if we can make it available, we will. Is that helpful? That probably sets the scene for us on this amendment.
We have always been clear that the levy and the safety net were as one. The reason for the levy is to provide money for the safety net. They cannot be separated. The reason for the levy relates to disproportionate growth, in that people have more than they should have in terms of equalisation and that money will go to the safety net. The safety net is to deal with a sudden collapse of a business or something mega happening that leaves the local authority without finance or as much finance as it needs.
In considering the safety net, we thought that it should not be so generous that authorities cease to care about whether their business rates grow or decline. We want the system to provide an incentive to authorities, first, to maintain and then to grow their business rates. Secondly, the safety net cannot be so lacking in generosity that vital local services are put at risk when authorities see, even temporarily, a decline in the business rates, particularly as this can be for reasons entirely outside the authority’s control—we recognise that—for example, because of losses on appeal. We have discussed what happens on appeal. That can be supported by the safety net. Thirdly, wherever the safety net is set, we need to keep an eye on the scale of the levy that would be needed to fund it. A safety net that requires a very stringent levy might work for the safety net, but if it means that authorities keep next to nothing of any growth that they generate, it will have failed the overall scheme.
I will not pretend that this is an easy judgment about what to do. It is not. It is one that, initially at least, we believe is met by setting the safety net threshold, as I have just explained, somewhere between 7.5% and 10% below baseline funding level; in other words, guaranteeing authorities somewhere between 90% and 92.5% of the funding that they could expect to see from the rates retention scheme. We will want to keep this under review and possibly adjust these percentages in the light of the actual operation of the scheme and certainly as a result of the consultation. Building fixed percentages into the Bill would effectively deny us the opportunity to respond to the concerns of local government, in future, if the percentages turn out to be either too high or too low.
I am not sure that I understand the problems that Amendment 50 seeks to address, and I am not persuaded that the concerns that underpin it are justified. It is undoubtedly true that a major redevelopment to, say, a town centre, could cause a temporary loss of income before the potential benefits of the scheme come to fruition. But if such a loss were significant, it would be covered by the safety net, which, as I explained earlier, would guarantee the authority between 90% and 92.5% of its baseline funding. To create, therefore, a special class of events—redevelopment—where an authority could be guaranteed to secure more than 90% to 92.5% of its funding, as this amendment would effectively do, seems to be wrong in principle. Why just redevelopment and why not other things? I am sure that other authorities could make a case for other one-off events which might, they would claim, be equally deserving of special treatment. Moreover, by providing indemnity for the early-years loss of income, we might end up with the law of unintended consequences and find ourselves simply indemnifying delay in bringing schemes to fruition, with all parties safe in the knowledge that no cost will fall to them. Where there is a redevelopment, obviously there is an initial loss of money, but the expectation is that as redevelopment takes place, the rating potential will come back in. I hope that explanation will satisfy the noble Lord and he will withdraw his amendment.
I was pleased that the Minister said that we would have, by regulation, an opportunity to debate this. It is important that we have a consultation so that we can consider it. She made the important point—with which I certainly agree—that many of these changes are outside the local authority’s control. Obviously we would like to produce growth but we cannot always do it.
The Minister said that when the process was up and running there would be some kind of review. I will just check that we will not have to wait until 2020 for it. I hope that when the safety net process has been in operation for a year or so it will be reviewed separately from the system as a whole.
Amendment 44 withdrawn.
Amendments 45 and 46
45: Schedule 1, page 34, line 2, leave out “paid” and insert “payable”
46: Schedule 1, page 34, line 6, leave out “paid to it for the year” and insert “of the amounts payable in respect of the year under those sections to the billing authorities that are required to make payments to it for the year”
Amendments 45 and 46 agreed.
Amendment 46A not moved.
47: Schedule 1, page 34, leave out lines 28 to 31 and insert—
“( ) if the authority is subject to a requirement imposed by a direction under paragraph 40 (direction to make calculations or supply information) or by or under regulations under paragraph 40A (regulations about calculations and supply of information) for the purposes of this paragraph, as soon as is reasonably practicable after the time for compliance with that requirement,”
Amendment 47 agreed.
Amendments 48 to 50 not moved.
51: Schedule 1, page 35, line 14, leave out “(an “in-year calculation”)”
My Lords, Amendments 51 to 56 in this group are minor technical amendments to the provisions about safety net payments on account. A central feature of the rates retention scheme is that authorities will be eligible for safety net payments if their business rates income declines significantly. We have just finished consulting on the threshold below which the safety net should apply.
Equally important is the process by which authorities will be able to access safety net payments. In our discussions with local government through the working group established to look at the technical details of the scheme, it was established that as part of the process for setting their budgets, authorities will have to estimate their business rates income before the start of the financial year. On the basis of those estimates they will be able to calculate whether they will be likely to need a safety net payment. The strong view of the sector is that they should then be able to claim a safety net payment “on account”, as provided for in paragraph 26 of the schedule. The Government agree with this position.
However, the drafting of paragraph 26, which refers throughout to an “in-year calculation”, might be thought to preclude a calculation made “before the year”. It is to remove this possible ambiguity that we have tabled the amendments in this group. With this explanation, I ask noble Lords to accept them. I beg to move.
Amendment 51 agreed.
Amendments 52 to 56
52: Schedule 1, page 35, line 24, leave out “an in-year” and insert “a”
53: Schedule 1, page 35, line 26, leave out “an in-year” and insert “the”
54: Schedule 1, page 35, line 31, leave out “an in-year” and insert “a”
55: Schedule 1, page 35, line 33, leave out “an in-year” and insert “the”
56: Schedule 1, page 35, line 39, leave out “an in-year” and insert “a”
Amendments 52 to 56 agreed.
Amendments 57 and 58 not moved.
Amendments 59 to 62
59: Schedule 1, page 39, line 46, leave out “audit” and insert “certification”
60: Schedule 1, page 40, line 1, leave out from “a” to “does” in line 2 and insert “certified calculation or certified information”
61: Schedule 1, page 40, line 4, after “or” insert “certified”
62: Schedule 1, page 40, line 8, at end insert—
“( ) The regulations may confer power on the Secretary of State to give directions about the certification of calculations or information.”
Amendments 59 to 62 agreed.
63: Schedule 1, page 40, line 43, leave out from beginning to end of line 2 on page 41
My Lords, this amendment removes the requirement for the Secretary of State to undertake consultation on pooling proposals before he may designate a pool or revoke such a designation. This will simplify the process for establishing and closing a pool without materially reducing the safeguards in place for pool authorities.
Amendments 32 and 33 remove the duty to consult those likely to be affected by a pooling designation or its revocation. In tabling these amendments, we are responding to the strongly held views of local government. Local authorities will warmly welcome this change. The rationale is that, in practice, the impact of a pool designation or its revocation is limited to the members of the pool and, because each local authority in the pool must have consented to be there, the removal of the consultation requirement will have no practical impact on the pool authorities. The amendments therefore simply remove a superfluous bureaucratic procedure.
Moreover, the Government also consider that the removal of the consultation requirement will not reduce transparency, since pooling designations will be identified in the draft local government finance report, on which we will consult widely. Other persons will therefore be notified of the pooling designations that are to have effect for the following financial year.
Amendments 34 and 35 concern the operation of the pool and the Government’s ability to alter any conditions they may have attached to a pooling designation. Apart from pool members, no other parties are likely to be affected by the addition, modification or deletion of a condition, so a duty to consult persons outside the membership of the pool is unnecessary. However, the Government will continue to be required to consult pool members themselves before varying any conditions, since pooling arrangements are intended to be voluntary and it is not right that we should vary conditions without first seeking the views of the members of the pool.
These arrangements tidy up the provisions around pooling arrangements and remove unnecessary and burdensome procedural requirements, and are widely welcomed by local government. With this explanation, I hope that noble Lords will accept these amendments.
Notwithstanding that, these amendments seem straightforward and we are content with them. We have not actually debated pooling much during our deliberations—it is a very important facility under this Bill, which we support—but we certainly accept the amendments on the basis on which the noble Baroness has moved them.
Amendment 63 agreed.
Amendments 64 to 66
64: Schedule 1, page 41, line 5, leave out from “designation” to end of line 6
65: Schedule 1, page 41, line 31, leave out from “consult” to end of line 32 and insert “the authorities covered by the designation.”
66: Schedule 1, page 41, line 34, leave out from “notify” to end of line 36 and insert “those authorities.”
Amendments 64 to 66 agreed.
67: Schedule 1, page 43, leave out line 27 and insert—
“37 (1) The Secretary of State may provide for the designation of areas in which certain non-domestic revenues shall be ring fenced to support infrastructure investment financed using tax increment finance and other mechanism, and in order to do so may—”
My Lords, given the speed with which this debate is going, I shall try to be fast, in the mood of the evening. All the amendments in this group stand in my name and those of my noble colleagues Lord Tope and Lord Shipley. They address deficiencies in the clauses in the Bill that deal with tax increment financing, commonly known as TIF.
As your Lordships will know, TIF-type financing arrangements financed much of the infrastructure of our Victorian cities. The structure is widely used in the United States to finance regeneration and development. It is a financing arrangement that is well understood by the capital markets and investors, but it has not been available for many decades as a financing tool for local government in the UK.
First, I acknowledge that the Government have taken an important first step by providing a framework in the Bill for this kind of financing. They have proposed two different programmes, commonly known as TIF 1 and TIF 2, both of which are based on the new right of local government to retain a percentage of the uplift in business rate revenues that results from designated infrastructure investments.
However, the Government have in effect made sure that the use of TIF 1 and TIF 2 will be severely limited. TIF 1 programmes are crushed by the seven-year reset period in business rate retention. In effect, a project started on day one of the legislation must be designed, receive planning consent, be built and financed, and the financing repaid, within seven years. That is limiting enough, but in the second year the time span reduces to six years and then to five years and so on. Clearly, no steady flow of projects can possibly result from this arrangement. TIF 2 enjoys a 25-year guarantee of business rate retention, so that problem disappears, but the programme is capped at £160 million for the whole nation and so is, frankly, a drop in the ocean.
These constraints fly in the teeth of the Government’s commitment to the devolution of power to local authorities. The constraints emasculate a form of financing that could have enabled a host of infrastructure projects at a time when we need economic growth. The constraints delay the development of a real market to fund TIFs. Markets need both volume and a steady supply. Only then will investors develop the skill base and build the marketing structure to invest, and only then will they offer well structured, attractively priced financing for TIF projects.
Amendment 67 would simply make sure that the term “tax increment finance” was included in the Bill. It is just silliness that the programme dare not, as it were, speak its name under the present arrangement.
Amendment 68 would tackle a far more significant problem. The Government argue that they must constrain TIFs because the financing will be added to the national debt figures, even though the national Government are providing no guarantees and no backstops and the project generates the repayment of the financing. Why do the Government take that position? It does not happen in other countries, so no one can argue that it is required by international accounting standards. This amendment effectively removes that self-inflicted problem.
Amendment 69 allows flexibility in designating the start of the seven-year rate retention period for any specific TIF 1 project. TIF 1 would therefore be far more viable. I defy anybody to give me a coherent argument against this, other than not wanting TIFs to happen.
Amendment 71 allows the Government to look at TIF 2 projects on a case-by-case basis rather than set an artificial, national cap. This amendment seems simply good sense and says that we respect the judgment of the Treasury on a project-by-project basis.
Ironically, because financing for infrastructure in the UK has been hard to come by for so many years, there are excellent projects, big and small, all around the country, which could go ahead if the constraints on TIFs were eased. Many would deliver jobs, housing and new commercial opportunities quite quickly, especially the smaller projects, which need little lead time. Many local authorities have been so disappointed by the emasculation of TIFs. The Government have a last opportunity to think again, and I hope that they will.
My Lords, I express my full support for the speech by the noble Baroness, Lady Kramer. The amendment is about getting TIF written into the Bill as a financial lever that can generate growth. All the international experience suggests that other countries are well used to using it.
I fully understand the need to ensure that investment and borrowing are responsibly undertaken and I have no desire to see problems arise such as have occurred in Spain with excess local authority and regional spending. However, localism in England has to mean trusting people with power and enabling them to manage their own investment and their own risk. As long as schemes meet the regulations, are genuinely additional and would not otherwise take place, the number of schemes should not be limited by central government, hence our full support for Amendment 71 which gives effect to that.
One of the amendments makes clear reference to tax increment financing, as opposed to there being no reference to those words at all. There is also an amendment that gives greater flexibility in start dates for schemes. Absolutely crucial, however, is the question of self-funding expenditure that complies with accounting standards, and the fact that it ought to be exempt from the public expenditure control framework because its impact on the deficit would be neutral, as the noble Baroness, Lady Kramer, has pointed out. In other words, there is a need to drive long-term growth through tax increment financing rather than through something that counts as an in-year spending decision, as long as it has been exempted from the public expenditure control framework. It seems that the Treasury has regarded infrastructure funded by TIF 2 as part of the local authority self-financed expenditure limits, which contrasts with the policy being followed for enterprise zones, which does not count, even though both mechanisms borrow against future business rate income over 25 years.
This is all about growth. We urgently want everyone to have responsibility for driving growth. This Bill says a lot about devolving business rates to local authorities. However, actually empowering and enabling local authorities to manage investment on the basis of future business rate income, but over a long period of time as opposed to a short one, is a vehicle that will enable growth levels to be enhanced. I hope very much that the Minister will agree with us that we need to do a little more now to promote tax increment financing as a vehicle for growth.
My Lords, I warmly endorse the amendments moved by the noble Baroness, Lady Kramer, and supported by my fellow Newcastle councillor—ex-Newcastle councillor, I should say now—the noble Lord, Lord Shipley. The noble Baroness is quite right to point out that for all the potential of this scheme, the amount that the Government have decided to allocate to it is, frankly, pitiful. I think that the figure is £150 million. During the mayoral referendum campaigns, which took place earlier this year, much was made of the prospect of city deals for the eight authorities that were subjected to a referendum, and the prospect of tax increment financing was dangled in front of them. However, only three authorities, I think, have now been awarded tax increment financing arrangements. Newcastle, I am pleased to say, has secured I think £90 million of the £250 million, but only two other authorities have been brought in. That is a fairly minimal impact overall.
We have just been treated to the noise of fireworks, which reminded me rather of the spectacular opening of the Olympic Games and the wonderful display there, which of course cost £29 million. That is 20% of the total that is going to be allocated for tax increment financing—for one evening’s entertainment, however wonderful. There has to be something wrong with the Government’s priorities when they afford only £150 million to an imaginative scheme that should incentivise growth. This is a good way to promote growth quickly. As the noble Lord, Lord Shipley, implied, infrastructure investment, which is of course what tax increment finance would essentially be directed to, can take place relatively quickly. It can generate growth in its own terms and blazes the trail for more substantial growth over a period.
In the debate in Committee the Minister prayed in aid the Office for Budget Responsibility as taking a view on these matters. I do not know on what basis that information was conveyed. It may be that the OBR has advised the Government—but the OBR does not take decisions in these matters.
As the noble Baroness, Lady Kramer, pointed out, it is for the Government to decide. On the face of it, it does not appear to be inconsistent with international practice. There has been some question about whether PFI arrangements should or should not be counted for those purposes—certainly, for many years, they were not—but the difference between this and PFI is that PFI was to cover public expenditure. To my mind, the only advantage of PFI arrangements was that they took it off the balance sheet internationally, as it were. It is not comparable when the whole thrust of the TIF proposal is to facilitate private sector development, with the beneficial effect that that would have on the economy. I hope that the Minister and the Government will look at this again and not seek reasons not to accept the amendment of the noble Baroness, Lady Kramer, but find ways to accept and develop it.
Can the Minister confirm or refute the suggestion that that £150 million is to be found in part by topslicing local government revenue grant by £60 million? Once again, we are seeing a three-card trick develop, in which we are told that we are getting extra resources, but in fact those extra resources are being deducted from what was coming to local government any way and rebranded. If that is the case—it may not be, but I am advised that it is by the city treasurer in Newcastle—that is a sleight of hand which is unworthy. I hope that the Government will ensure that the total of £150 million—or the larger amount which we hope for—is new money and not deducted from the anticipated grant. The Opposition strongly support the amendments.
My Lords, I am sad not to be able to satisfy the noble Baroness. I know how keen and knowledgeable she is about TIF and she has been pushing a hard line ever since Second Reading. I understand why, because she feels that this will not be of sufficient benefit.
The noble Baroness has also been pushing the line that it should be off the balance sheet, so I therefore turn first to Amendment 68, as it goes directly to the heart of what we are talking about. The amendment would ensure that TIF is not scored as public sector debt. That is simply impossible. We had a long debate about this in Committee and the facts have not changed. TIF 2 must always count as public sector borrowing. Because it uses tax revenue—business rates—to secure funding for development within a predefined area; and because taxes are uniquely established by the tax-raising power of government, TIF 2 must be recorded as government borrowing, even if a private sector developer is taking on the development risk. The Office for Budget Responsibility, to which the noble Lord referred, has confirmed that that is how the borrowing must be treated in the national accounts.
It is therefore a direct impact on public sector debt which cannot be avoided. The local authorities who were successful in the TIF 2 competition—because a competition it indeed was—are now confirmed as Newcastle, Nottingham and Sheffield, which will be undertaking additional borrowing that they otherwise would not have. Therefore, TIF 2 schemes come at a cost to the Government, as we have to count the cost of the additional capital expenditure that the new borrowing supports.
The Government have been very clear that the amount of TIF 2 has been limited to £150 million at this time—I hope to have an answer for the noble Lord about the £60 million—to comply with our overriding priority of deficit reduction. The £150 million was from topslicing from councils, but it reflects the business rates retention element, not the levy element. I simply have to reject Amendment 68 on the basis that this has to be on the balance sheet.
Going back to Amendment 67, it seeks to ensure that designated areas are identified for the purposes of infrastructure provision in the Bill. This is not necessary; the Bill already allows, under paragraph 37 of new Schedule 7B to the 1988 Act, for the Secretary of State to designate areas within which the ratings income will be disregarded from the business rates retention scheme.
I am not convinced that there is much practical benefit to be gained from Amendment 69. All it would seem to do is to introduce further complexity. It is much easier for the operation of the scheme if the income is disregarded at the beginning of the year, and I am not persuaded that this has a significant detrimental impact on local authorities.
Amendment 71 looks to remove important controls from the system in that it seeks to create a framework where local authorities can advance any TIF scheme. For those reasons, I have to reject the amendments.
However, the noble Baroness talked about local authorities having many projects which they already have available and want to carry out. The point I would make is that if they are so ready, the seven-year reset is not an impediment because they could be ready to be got going in year 1, which would give them the support that they need. I ask the noble Baroness to withdraw her amendment.
My Lords, I thank the Minister for her reply, although we are simply going to have to disagree on a lot of this. I would point out, however, that her comments about the OBR and accounting necessity mean that her Government now have a major problem with their enterprise zones. Perhaps she needs to go back quickly and suggest that the OBR will have to change the accounting programme that has been put in place to cope with the enterprise zones and the financing that will flow from them. That is the only logic of the statement that she has just made.
As I said at the beginning, however, I recognise that this Bill marks a significant step forward and that at least there is now a framework in legislation for TIFs, although it will take some further steps to turn them into vital and vibrant instruments for local government to use. Three at least have been done, for Newcastle, Sheffield and Nottingham. I hope that the Government will continue to follow through on the logic of their own thinking on devolution, infrastructure and joined-up thinking between TIFs and their goals for economic growth. Perhaps at a later point in this Parliament we might see further progress on this issue, but for the moment I withdraw my amendment.
Amendment 67 withdrawn.
Amendments 68 and 69 not moved.
70: Schedule 1, page 46, line 8, at end insert—
“( ) Without prejudice to the generality of this paragraph, the regulations may provide that a designated class may include a hereditament which consists of an investment to provide electricity generation from a renewable or other low carbon source, including nuclear power.”
My Lords, I assure your Lordships that this will be a considerably shorter speech than the last one that I made but of no less importance. I will start, if I may, by quoting a letter that was written to local authorities in the Somerset area, which is of course hosting the Hinkley point nuclear power stations. The letter was written from the Cabinet Office and signed by my right honourable friend Oliver Letwin. It draws attention to the coalition’s agreement in the programme that they embarked on in 2010.
The letter says that it set out a commitment to,
“encourage community-owned renewable energy schemes where local people benefit from the power produced. We will also”—
these are the important words—
“allow communities that host renewable energy projects to keep the additional business rates they generate”.
The letter goes on:
“While this commitment did not extend to all low-carbon technologies, the design of the business rates retention proposals will ensure that there will be significant ongoing benefits to those authorities hosting low-carbon energy infrastructure. It is likely that nuclear power stations will generate significant increases in business rates revenues in line with scale of the programme”.
The nuclear industry has been campaigning for some time that benefits that apparently were offered to renewable technologies should have been offered to it as well, and that the communities that host these very major investments should see some direct benefit from doing so. This was followed up by a debate in another place by the honourable Member for Bridgwater and West Somerset, my honourable friend Ian Liddell-Grainger, on 18 September, the last day before the conference recess, which was answered by the Minister of State for Energy at the Department of Energy and Climate Change, my honourable friend John Hayes. This whole concept was examined in some detail and a comparison was made with the Section 106 agreements under planning legislation. The point was made that they did not go far enough. Although there have now been substantial agreements with the developer on Hinkley Point under Section 106, it was felt that something more was necessary. Mr Hayes said:
“I can assure my hon. Friend that I will draw the matter into sharp focus, and we will indeed deal with it in the short term. My officials have been working on a number of ways, including business rates retention, in which a community benefit package could be delivered”.—[Official Report, Commons, 18/9/12; cols. 897-98.]
I have two points to make to my noble friend. First, am I right in assuming that Part 10 of Schedule 1, “Designation of areas and classes of hereditament”, will be the legislative measure under which regulations could be made, both for renewables and for nuclear power stations? I would be glad if my noble friend could assure me of that.
Secondly, will she assure me that her department is now fully behind the proposal that this should be done for nuclear power stations? I know that the Department of Energy and Climate Change is and, as we have heard, the Cabinet Office has clearly expressed a strong argument in favour. I hope that my noble friend can say that this is now government policy and that, when the regulations come to be made under Part 10 of Schedule 1, they will in fact cover nuclear power stations. I beg to move.
My Lords, I start by congratulating the noble Lord, Lord Jenkin, on being able to quote from a letter by Oliver Letwin; I thought that most of his correspondence ended up in park bins.
As I understand it, the Government issued a statement of intent concerning the application of the business rate retention scheme and renewable energy projects in May 2012. In particular, the statement highlighted that the origin of the proposals was the coalition agreement. I am not sure whether these days that is honoured more in the breach than in the observance—it is not our job to encourage its retention—but the thrust of the proposals, which we support, is that business rates for new renewable energy projects would be retained in full by the relevant local authorities. The statement of intent set out what for these purposes would be considered as renewable energy projects and qualifying technologies.
The noble Lord’s amendment would extend the application of the provisions to low-carbon sources, including nuclear power. This would seem to take the provision beyond its original intent, and it would seem beyond the coalition agreement. But as I say, we are not guardians of the agreement and do not hold ourselves out to be. I discussed this matter briefly with colleagues who have responsibility in these areas and they were relaxed about us supporting this extension, if that is what it is.
I will make just a couple of points. Part of the process is to encourage local planning authorities to accommodate these arrangements. For the nuclear power plants we are talking about, it is more likely that they would take what used to be called the infrastructure planning commission route. However, that does not negate the point the noble Lord is seeking to press. I also wondered whether nuclear power projects would be on the central rating list rather than the local one, but it is right that they are on the local list and therefore fall within the ambit of the provisions and support that can be given.
The noble Lord has raised an appropriate point and we are happy to support the extension of this, if that is what it is, and he has quite properly asked the Government for their view.
My Lords, let me start by confirming for my noble friend that this would come under the schedule he referred to. While I understand the concerns that prompted him to table this amendment, I hope that I will able to convince him that it is unnecessary, and that he can have confidence about the Government’s intentions in terms of the way the rates retention scheme will treat the business rates paid by new renewable energy projects and by nuclear power stations, so that he will be able to withdraw his amendment.
I should say initially that we do not believe that my noble friend’s amendment is needed. Paragraph 38 of the schedule is clear that the Secretary of State may, by regulation, designate classes of hereditaments by reference to such factors as the Secretary of State thinks fit. The regulations will in effect enable the authority to keep the business rates attributable to property falling within that particular class of hereditament. The business rates revenues from that development would be disregarded in the calculation of the levy or any reset of the system. The Bill quite rightly makes no attempt to specify or to restrict the possible classes that may or may not benefit from such provision. The Government have been very clear that authorities which host new renewable energy projects will be able to benefit from the full level of business rates paid on such projects. That particular commitment was set out, as noble Lords have said, in the coalition agreement and we will deliver it—not in the breach, but through regulations under paragraph 38. The Government set out in their statement of intent published on 17 May the technologies that would qualify as renewable energy projects for the purposes of that commitment.
With regard to rateable property which generates electricity from other forms of low carbon sources, including nuclear power stations, the Government’s proposals for business rates retention, as provided for in this Bill, already provide strong benefits to authorities which host such developments. For the new generation of nuclear power stations, the business rates are likely to be substantial, and there is therefore likely to be a significant financial boost to those authorities hosting one. In addition, the Government made clear in the national infrastructure plan that they would bring forward proposals for a community benefits package for nuclear power stations by 2012. We have been working closely across government to develop such a package. My honourable friend in the other place, the Minister of State for Environment and Climate Change, confirmed as recently as 18 September that the Government remain on track to deliver the package. We cannot yet reveal the details of the community benefits package for nuclear power stations or how such a scheme might work. However, I can assure him that, if it were decided to use the business rates retention scheme to provide even greater support to those authorities hosting new nuclear power stations, the Bill already has the flexibility to enable us to deliver such a mechanism. There is no need to include in the Bill specific types of development that may be designated under paragraph 38. I am sure that he will understand from what I have said that nuclear power stations would be included. I hope that, with that explanation, my noble friend will feel able to withdraw his amendment.
My Lords, before the Minister sits down, will she clarify something for us? I think the thrust of her point was that there is going to be a community package for such provision in any event and therefore it is not planned that it will be provided under the business rates retention scheme proposals in the Bill. It is certainly not included in the list of qualifying technologies in the statement of intent. Is the Government’s point that it will accommodate requests to be included in those qualifying technologies or that nuclear power will have to be dealt with by a different route or a different package?
The community benefit aspect of this will be constructed about the nuclear energy, which I think is the point the noble Lord is making. Local authorities—there is likely to be more than one—that host nuclear power stations will get to keep the revenue from the rates. I am not sure that I have convinced the noble Lord.
I apologise. I do not want to prolong this as the clock is ticking, but I did not see that. Perhaps I am misunderstanding the qualifying technologies set down in the statement of intent. I assume the statement of intent is the Government’s starting position on what technologies are going to avail themselves of this support. I am happy for this to be dealt with in correspondence, if that would be helpful, but if the Government proceed on the basis of the statement, it does not seem to include nuclear power.
My Lords, I am extremely grateful to my noble friend for her assurances. I certainly take heart from them. On the question asked by the noble Lord, Lord McKenzie, as I think I said, Mr Letwin’s letter said:
“While this commitment did not extend to all low-carbon technologies, the design of the business rates retention proposals”—
I think that is what we are talking about, and I am grateful for the confirmation that paragraph 38 is appropriate—
“will ensure that there will be significant ongoing benefits to those authorities hosting low carbon energy infrastructure. It is likely that nuclear power stations will generate significant increases in business rates revenues in line with the scale of the programme”.
I think it was a perfectly fair question, and I hope we will all get a copy of the answer that will be sent to the noble Lord, Lord McKenzie of Luton. In the mean time, I am happy to withdraw the amendment.
Amendment 70 withdrawn.
House adjourned at 9.53 pm.