Local Government Finance Bill

The Bill brings about the most fundamental change in local government funding since the poll tax. Like the poll tax, it is a big change that is being forced through too fast and, like the poll tax, there is no consensus of support behind it. This reform and this Bill build in unfairness like a ratchet. At the moment essential local services are funded on the basis of need. After this legislation is passed, they will be funded on the basis of the ability to raise tax and pay locally. Ninety years ago, 30 councillors from Poplar went to prison to establish the principle of equalisation in local government funding. That equalisation means that we now have a system of funding that enables each council to provide services to residents to a similar standard. That is why the current formula for grant to local councils takes into account population, need and the capacity to raise funds through the local council tax. It takes account of the fact that there are more than three times more looked-after children in Newcastle than in Surrey. It takes account of the fact that Bexley and Barnsley have similar populations, but Bexley raises more than £37 million more in council tax each year than Barnsley does. The Bill ends the equalisation that George Lansbury and his Labour councillors in Poplar fought for just after the first world war. With council tax frozen or capped by referendums, the increased funding for increased spending and increased need must be met through increased business rates. The problem for the future is that the opportunities to grow the business rate are unevenly spread across the country, as is the business base. Kensington and Chelsea has a smaller population than Barnsley or Rotherham, yet it raises more than three and a half times the business rates of Rotherham and more than five times the rates that we raise in Barnsley. The local government finance system is, as the Secretary of State said, complex and incomprehensible. The Bill will make it more complex and less comprehensible. It has, in my view, four big flaws. First, from year one the gap between affluent and less affluent areas will grow. The affluent areas with the higher business tax base start with an advantage that will just get bigger and the system of tariffs and top-ups will reduce but not remove those disparities as otherwise they would remove the incentives to grow, too. Secondly, the idea that the legislation will localise business rates is largely an illusion. As my right hon. Friend the Member for Leeds Central (Hilary Benn), the shadow Secretary of State, said so clearly, some of the most critical decisions about how the system will be designed and operated will be made by central Government and not local government. Thirdly, local government's certainty about funding for the future and therefore long-term planning will be badly undermined by the new system because business rates income is volatile and hard to predict. The Secretary of State's decisions about the design of the system will, it seems to me, inevitably have to be made annually, undermining the ability of local government to plan for the long term. Fourthly, business growth is not the same as business rates growth, so the incentives to councils to see and support the economic growth of their area might prove to be weak or even perverse under the new system. Business rates are levied on buildings—the bigger the better—so supermarkets, gyms and warehouses are good, but small starter units with high-tech design and manufacturing are bad. Finally, the changes this Bill makes to council tax benefit are a hospital pass to local government. Many people in Rotherham benefit from that support by about £15 a week. That will be cut by £2 million in 15 months' time, and although pensioners will be protected, other groups will find the cut is even bigger. This is a bad Bill and we must oppose it.