A failing Bill?

The Local Government Finance Bill was rushed through the Commons, yet lay dormant for months before its recent arrival in the Lords. John Healey explains why he thinks the Bill is failing.

Government legislation in the House of Commons at present is like being trapped in traffic on an overcrowded motorway. Sudden surges of movement are followed by unpredictably long periods of going nowhere.

It took ministers 18 months to introduce their 16-clause Local Government Finance Bill after pledges in 2010 to return business rates to local government, alongside control of council tax benefit.

During just three weeks in January, the Bill was given its first full debate and, unusually, forced through all its committee scrutiny stages in the Commons’ chamber.

Then a total halt. For four months, until last week, when the Commons had only one day to deal with detailed amendments at report stage and the final third reading debate.

While central government takes its time and legislates in such abrupt fits and starts, there are fixed points for local government. Councils must have their new council tax support scheme finalised by January 2013, and the new business rate-based funding starts in April.

In January, I argued – as did former local government minister, Nick Raynsford, and Clive Betts, MP for Sheffield South East – that the timetable was too fast and the detail too sketchy to allow local government to manage these big changes properly. Ministers promised ‘draft regulations while the Bill is still before this House’.

There are still no draft regulations. Instead, seven ‘statements of intent’ totalling 165 pages, were published on the working day before the Commons debate last week.

Such is the shambles, that last week, ministers had to move amendments to allow councils to set up council tax support schemes before the Bill becomes law.

The House of Lords now faces a formidable task to make the new system fit for purpose – and fairer. The council tax benefit changes are a hospital pass to local government.

This benefit entitlement funded in full by national government to help more than five million people becomes a cash-limited discount decided by local councils with £500m less to pay for it.

Councils will carry the public blame for cuts and carry the financial risk of any increase in need or claims and, therefore, costs.

With just eight months to go, no draft regulations and more changes to the legislation likely in the House of Lords, ministers are setting councils up to fail.

There is no time to consult local residents, design the computer software, see how tapers to the new universal credit system will work with the scheme or integrate the cost into budget-making in the autumn.

The reform is rushed and highly likely to go wrong.

There are even deeper problems with the legislation for business rates reform. The Government has two conflicting aims for the one tax – to allow councils to retain the revenue to reward economic development, and to use the revenue as a mechanism for redistribution.

Contradictions, compromises and complexities run throughout the plans as a result.

Levy and safety net levels, top-ups and tariffs will all be decided annually by ministers, while the Treasury will take half of the total business rates raised each year, every year, indefinitely.

This centralised localism makes any incentive uncertain and unpredictable. And it makes essential long-term financial planning very much harder.

But my objection to the way the new system will work is fundamental not technical. Ninety years ago, Labour councillors in Popular went to prison to establish the principle of equalisation in local government funding, so that every council can provide services to residents to a similar standard.

That’s why essential local services are funded on the basis of need, population and the capacity to raise council tax revenue.

In future, with council tax frozen or capped by referendums, any increase in need or spending must be met through increased business rates.

But economic growth is uneven around the country, so from year one, the gap between affluent and less affluent areas will widen. And even if there was the same rate of growth in all areas, the relative size of the business base income is higher for some councils than others.

Kensington and Chelsea RLBC raises three-and-a-half times more in business rates than Rotherham MBC, and five times more than Barnsley MBC, yet it has a smaller population than both.

The top-up and tariff system will reduce but not remove that disparity. So, councils which have a big business rates base, a strong council tax take and high levels of growth will be win-win-win councils, and those which don’t will lose-lose-lose.

This unfairness is designed into the new system like a ratchet, and it will increase divisions and tensions throughout the country.

This is legislation which fails the fairness test, and will not achieve its declared localising aims. Like any local government funding change, there will be winners and losers. But the one clear-cut winner is central government.

• This article appears in the 31 May 2012 edition of the Municipal Journal.