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Concerns have been expressed today, and I shall come to those a little later, but it is worth reminding ourselves briefly of the context. I say that because it took the hon. Member for Chesterfield 19 minutes to put on record the success that has occurred over the past 10 years because of this Labour Government’s investment. It is easy to forget that just 10 years ago, many of our cultural and heritage organisations were struggling to survive; they were caught in a downward spiral of deficits and underfunding. The financial fragility in the arts had a hugely debilitating impact. Some 30 out of the top 50 regional producing theatres were in deficit, many were technically insolvent, and there was no sign that the trend would be reversed. I must say to the hon. Member for Wantage that that was the legacy of a Conservative Government, and I was surprised that he sought to attack the free entry to museums that has been a cornerstone of the revival over the last period.

Mr. Vaizey: I am not attacking that; I am attacking this Government’s attempt to elide the compensation that they gave to museums when they were prevented from charging with the phrase “increased investment in the arts”.

Mr. Lammy: Let us be clear that when we came into office, Government investment in the arts stood at just £187 million a year. This Government have provided a 73 per cent. real-terms increase to £412 million this year. The increase has clearly paid off in the sector, because a 72 per cent. increase in the budget for theatre led to an audience increase of 40 per cent. and to a 60 per cent. increase in education work.

The groundbreaking creative partnerships initiative has allowed more than 610,000 young people to be involved in creative projects. Grant in aid funding to museums has risen by 29 per cent. in real terms since 1997. Free admission has brought about an 87 per cent. increase in visits to formerly charging museums since 2001, representing an extra 29 million visits. Membership of English Heritage is at its highest level; visitor numbers are running to 11 million a year. Heritage open days have enjoyed increased success and have attracted more than 1 million people in the past year. The listed places of worship scheme has given more than £56 million to places of worship across the UK since 2001.

I say all of that because it is clear that part of this debate has been about the core funding that has gone to heritage organisations. Such funding is yet to be determined in the comprehensive spending review, and I understand the anxiety of hon. Members and the sector during this period. As I have said, it is my belief that we must build on success, tight though the Treasury has indicated that the CSR will be. All that has happened is unaffected by the decisions on the lottery, which I shall discuss.

Paul Holmes: I agree with almost everything that the Minister has just said. As I said in my opening comments, the cuts under the previous Conservative Government were appalling. It is excellent that things have been restored during the past few years, which is why no one wants a return to the bust period after the boom period—we do not want to go back to where we were 10 years ago.

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Will the Minister deal with a specific point that I have made? We were talking about the increased funding for arts in particular, but the heritage world has not done so well. English Heritage has faced real-terms cuts, and it is much more on a knife edge. Private heritage groups cannot bid for DCMS money and must rely exclusively on lottery funding. If lottery funding is to be even more squeezed because of the Olympic-inspired cuts, such groups will lose out even more in what is already a poorly funded area compared with the arts.

Mr. Lammy: We have had long debates in this Chamber about heritage and we had a Select Committee inquiry on heritage investment. Let us be clear. Five or six years ago, a quinquennial review of English Heritage showed that the organisation needed modernisation. That has been led superbly by Sir Neil Cousins and Simon Thurley. It was not the right time to increase the budget of an organisation that was in need of modernisation, but English Heritage was able to make efficiency savings, which it put back into the heritage sector. The combination of investment in museums and heritage and funding from the Heritage Lottery Fund resulted in more being spent on heritage last year than has ever been spent on the sector in this country’s history. That is a statement of fact.

Yes, the hon. Gentleman is entitled to make his case for further funding for English Heritage, and the Government have made our intention clear in the heritage protection White Paper. It is wrong to suggest that the community has been starved of funds during that period. If that were so, we would simply not have the increase that we are seeing in the number of visitors and open days and in the maintenance of the fabric of our buildings and institutions

Paul Holmes: Museums, galleries and, to some extent, archives have certainly not done as well as the arts, and would argue that they have not had the funding to meet the above-inflation cost of acquisitions, books and digitisation

Mr. Lammy: We are moving towards the Select Committee inquiry, but before I return to the central point let me say that I encourage the hon. Gentleman to look at the page on acquisitions in the Museums, Libraries and Archives Council report that was published two or three months ago, where he will see how our national museums stack up against those of our colleagues in Europe. He will see that the acquisition budgets have held up particularly well and that they are particularly strong in this country. I am sure that he will acknowledge the increase that allows the National Heritage Memorial Fund to ensure that our museums can make acquisitions during the next period.

Given what has been said, it is important to say that in the past few weeks I have of course spoken to cultural organisations and small arts groups, and I recognise that there is real concern about the impact of the changes to the Olympic budget announced in March. It is true that for a limited period of about four years, some lottery projects that might have gone ahead will have to be postponed or will be unable to go ahead. I do not accept the suggestion that that is a smash-and-grab raid, which sounds more like a Dale
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Winton programme than reality, or that it has shattered the country’s arts fabric. I believe that we are talking about a huge opportunity for this country. We cannot, on one hand, say that it is hugely important for the nation that the Olympics proceed and, on the other hand, not accept that it is precisely the Olympics that will fund this opportunity.

I remind the Chamber that constituents in east London are similar to mine. They are some of the poorest people in the country and include some of the poorest youth in the country, who need sport and arts infrastructure. That part of the country was severely affected by the huge bombing that it experienced during the second world war and it still needs investment. If that is not a case for Olympic funding, I cannot think of another. That is why, in the detailed negotiations between the Government, the Mayor of London, the Secretary of State for Culture, Media and Sport and the Treasury, we have sought to establish a balanced and fair pot of funding.

Of course, during those discussions one must have priorities, and hon. Members may depart from the consensus that we arrived at on the Olympics. I accept that my hon. Friend the Member for Sittingbourne and Sheppey has led on these issues, particularly funding, for a considerable time, but in the end one must be clear about where the funding comes from. The debate has reflected a basic tenet that I cannot accept. I believe that lottery funding is appropriate for the Olympics precisely because of the problems in that part of London and the games’ huge importance for the aspirations of young people in this country, and so that culture and arts in this country can go forward.

Mr. Rob Wilson: Does the Minister agree with the Secretary of State who said in the Financial Times that the loss of lottery funding for the arts was very small?

Mr. Lammy: As I said in my opening comments, the Secretary of State was referring to the overall spend on the arts, which has increased by 75 per cent. Lottery funding remains available to enable the arts to go forward. Lottery spend on heritage to 2019 is £1.9 billion, so it is disingenuous to suggest that this is a smash-and-grab raid that would leave the sector entirely shattered.

I acknowledge the concern in the sector, but it is right to put on record the cultural life of this country and our legacy from that. The hon. Member for Chesterfield should look at the work that the MLA has done on the Olympics and at the 30 per cent. increase in tourist revenue for Sydney after the games there. The net gain to the sector here after the Olympics will clearly be in tourism, heritage and the arts sector. That is why it is so important that we all make that investment.

Mr. Don Foster: I confess that I am now totally and absolutely confused. I accept entirely that the additional cut from the arts, culture and heritage sector will not leave it entirely shattered, but does the Minister accept the simple premise that as a result of Government decisions those sectors will have less money to spend? Can he explain how cutting that money will enable us to have more legacy than if we had not cut it? That is what he seems to be implying.

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Mr. Lammy: Can we have some consensus among the Liberal Democrats? One Liberal Democrat Member is saying that the sector will be left shattered, and the other is saying that it will not.

This decision has been made for the next four years in the run-up to the Olympics and we have come together to establish a budget that includes contingencies. After that, it is absolutely clear—indeed, axiomatic—that those who gain from a successful Olympic games are precisely the sectors that we are talking about. That is why we made the decision and why we have come to this arrangement. Of course I accept that less funding will be available from the lottery for arts and heritage organisations, but I welcome the decision to protect funding from the Big Lottery Fund to the many organisations that do arts, creative, sporting and heritage work.

Greg Clark: On youth exclusion, is the Minister aware that the Big Lottery Fund has decided in principle to cut the young people’s fund, which helps to promote youth inclusion?

Mr. Lammy: I am aware of the rumours to which the hon. Gentleman refers, but I refer him to the statement—

John Bercow (in the Chair): Order. I am sorry to interrupt the Minister, but it is time for the next debate.

4 pm

Sitting suspended for a Division in the House.

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Local Government Finance

4.13 pm

Mr. Douglas Carswell (Harwich) (Con): I am extremely grateful for this opportunity to talk about the reform of local government finance, and I thank the Minister for coming along to this debate.

In a sense, we are all localists now. At least, all the mainstream political parties are paying lip service to localism and talking the language of localism. Labour Ministers are tripping over themselves to tell us how they will devolve power to local communities. The Conservative party—my party, which used rate-capping and abolished the Greater London council—is building a new modernist agenda based on localism. The Liberal Democrats have been talking about devolving power from Whitehall to town halls for as long as any of us care to remember.

There is a danger in having an orthodoxy in politics, in that localism could mean all things to all people. Therefore, we need to introduce a litmus test for localism. For me, the litmus test is the extent to which a political party is willing to localise control over finance. In Britain today, central Government collect more than 90 per cent. of public revenue. They have a near monopoly on tax revenue. Among Organisation for Economic Co-operation and Development countries, only in Ireland is a small percentage of local government finance collected locally. In the United States, some 62 per cent. of local spending comes from local sources. In France and Germany, it is some 66 per cent. In Britain, on the other hand, a mere 25 per cent. of what our local councils spend is collected locally.

I shall not give a detailed description of the minutiae of local government revenue streams—that would be tedious and take a long time. Briefly, revenue support grants constitute nearly one third of local authority income. Critically, those grants are awarded on the basis of Whitehall’s calculation of local need. Also set centrally are specific and ring-fenced grants, and the national non-domestic rates, which make up about one fifth of local authority revenue. Only a tiny element—one quarter of local revenue—is left to local discretion. Two thirds of that comes from the council tax, and the remaining third comes from other charges.

There are consequences to fiscal centralism. There is an economic cost, in that it rewards inefficient councils. With central Government’s allocation of grants being made on the basis of their assessment of local authority spending needs against the actual level of service, there is a perverse incentive at work. A local authority that is good at turning tax pounds into high-level public services will not qualify for as large a grant as one that is less efficient.

I believe that the political consequences of fiscal centralism, however, are more serious. There is less local accountability in local government. There is no longer the correlation that there once was between how someone votes and what services they receive locally, what priorities are set locally and the taxes that they have to pay. There is much less local democracy. The scope for a slate of candidates from any party to stand for office proposing a radically different set of tax-and-spend alternatives is diminished, and as a result there is less pluralism. There is a uniformity of
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provision, process and output, whereas I believe that local government should be a rich mosaic of diversity and should offer different local solutions to different problems.

Most worrying of all, fiscal centralism causes voter resignation. Turnout for the past three local elections in England has hovered between 29 and 39 per cent. It would be a grave mistake to regard that low turnout as a sign of contented voter apathy. Far from being contented or apathetic, voters are resigned. A MORI poll showed that 91 per cent. of the public were dissatisfied with the services provided by their local authority. Sixty per cent. believed that their local authority gave bad value for money, yet a far smaller percentage bothered to vote and do something about it on election day. I believe that voters have perceptively clocked that it does not really matter whom they vote for or how they vote in local elections. The key decisions—how often bins are emptied, the rate of council tax—are made by officials in Whitehall, and funding is provided through bureaucratic formulaic calculations.

How then should we make town halls more self-financing? Rationally, there are two categories of option. We could solve the balance-of-funding problem by massively centralising expenditure, but I would not advocate such a solution as it would destroy any remaining semblance of local democracy. The other alternative, if we are serious about making town halls more self-financing, must logically be to devolve revenue-raising powers from central to local government. To make town halls entirely self-financing, revenue from devolved tax raising powers would have be about £80 billion. I am not suggesting that town halls are made 100 per cent. self-financing, but we could take steps towards that by devolving national revenue streams that are currently used to collect tax centrally to local authorities. I emphasise that that is not about additional taxes. I am not proposing what Lyons suggested in his inquiry and trying to invent new forms of taxation; I am talking about the devolution of existing central revenues to the town hall.

Any reform that devolves tax revenue streams must adhere to four key principles. One is local accountability. Local authorities must be accountable for how they exercise any new revenue-raising responsibilities. There must also be transparency as local taxpayers and voters need to know to whom they are paying tax and for what. There also needs to be cost-effectiveness and fairness.

What are the options? One solution is a local income tax, which has been an option since the Layfield committee proposed it in 1978. The Liberal Democrats have advocated a local income tax for as long as anyone can remember. In Sweden people have municipal services funded through a system of local income tax. It is an option and I do not dismiss it out of hand, but I do have a couple of reservations. If one is to have a local income tax, either it should be a genuine local income tax that is collected, set and administered locally, in which case the cost of collection would make it an inefficient solution, or it would have to be based on Liberal Democrat party policy. That would involve a local income tax that is in fact collected centrally, in which case there would be problems of accountability. I hope that hon. Members will excuse the slightly wonkish language, but such a tax would become, in
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effect, a locally hypothecated band sitting on top of what remained a national income tax. In what sense would that be perceived as a local tax?

Another alternative—the one that I believe comes closest to solving the problem—is VAT, which raises a revenue stream for Whitehall of about £80 billion. By happy coincidence, that is approximately the amount that Whitehall pays to the town halls through various forms of subsidy and grant. Could we localise VAT revenue? I believe that we could and that we could go further and turn VAT into a local sales tax. VAT is, of course, charged at every stage in the transaction process; a local sales tax would be charged only at the point of retail. Tax jurisdictions at county or metropolitan level could each set their own rate. In short, we could abolish VAT, replace it with a local sales tax, and scrap the council tax-based system of local government finance.

Such a system would be devolved rather than additional taxation and there would be local accountability. People would know what services they were getting and would pay through their taxes for what they voted at the ballot box. It would be cost-efficient. At present, VAT is an extraordinarily expensive and complicated tax to collect and an army of businesses—large and small—are co-opted, often against their will, to be unpaid tax collectors of the state. With a local sales tax, that would simply fall away and the only liabilities would be calculated at the point of retail. It would be a fair system and it would be a tax on consumption.

Figures from the Institute for Fiscal Studies show that, under such a system, the tax bill as a percentage of household expenditure would be pretty equal across each income decile. There would be drawbacks—for example, equity. Different tax jurisdictions would have different tax bases capable of generating different levels of revenue, so there would be some need for a top-up scheme. The scheme would contravene our EU treaty obligations. Currently, EU rules govern our VAT system. We could renegotiate, and as someone who advocates that the United Kingdom should withdraw from the European Union, I do not consider that a barrier to the proposal. If we could axe VAT, restore local democracy to England and the European federalists objected to it, that would be the icing on the cake.

Some people say that different tax jurisdictions with different rates would lead to evasion—as one Tory Minister once put it, there would be the smuggling of butter across the south downs. There is currently massive VAT evasion and I do not believe that this system would be any worse. A good deal of data suggest that tax would be less easy to evade under my proposal. In the longer term, there would be the advantage of tax competition between different tax jurisdictions. I believe that the system would also lead to more efficient local government as the rate would have to be set at a level that generated a high rate of taxation without harming small or big businesses. Local government would try to squeeze efficient value for money out of every tax pound collected.

Sir Paul Beresford (Mole Valley) (Con): My hon. Friend has obviously given the issue a great deal of thought. Can he explain how he would bring in a form of equalisation, bearing in mind the differences between sparsity and density?

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