10 Oct 2012 : Column 1011

10 Oct 2012 : Column 1011

House of Lords

Wednesday, 10 October 2012.

3 pm

Prayers—read by the Lord Bishop of Derby.

NHS: Evidence-based Medicine


3.07 pm

Asked By Lord Taverne

To ask Her Majesty’s Government whether they will ensure that treatment provided by the National Health Service is founded on evidence-based medicine.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, evidence should be at the heart of modern medicine. The National Institute for Health and Clinical Excellence develops authoritative, evidence-based guidance that we expect the National Health Service to take fully into account in its decision-making. However, it is ultimately the responsibility of clinicians to determine the most appropriate treatments to prescribe, in discussion with their patients and taking account of individual clinical circumstances.

Lord Taverne: My Lords, the Secretary of State has announced his support for homeopathy and his opposition to research into hybrid stem cells. He has also stirred up the abortion debate. Would the Minister perhaps persuade the Secretary of State to make a public reassuring statement that he will not use his position as head of the health service to promote the kind of anti-science views and primitive social attitudes which are normally associated with the American Tea Party?

Earl Howe: My Lords, I would expect that my right honourable friend the Secretary of State is well aware of the public comment on his recent statements, but he is entitled to his personal views. The Government’s position remains that it is the responsibility of local NHS organisations to make decisions on the commissioning and funding of healthcare treatments, such as homeopathy, for NHS patients.

Lord Hunt of Kings Heath: My Lords, I refer the House to my interests in the register. Following up that point, does the Minister not think that the Secretary of State should at least show some discretion when he comes to make statements on these issues in the sense that he is also head of the Department of Health and the National Health Service? In relation to his response on NICE and guidance, is he satisfied that the technology appraisals that NICE issues are indeed implemented by the health service?

Earl Howe: My Lords, I do not think I can add to what I said previously as regards my right honourable friend. No doubt he will take the noble Lord’s comments into consideration. As regards NICE guidance, as the noble Lord will know, there are concerns that in certain parts of the health service NICE guidance is

10 Oct 2012 : Column 1012

not followed as we would expect it to be. There are various initiatives in train to correct that, both as regards the NICE technical appraisals and also clinical guidelines.

Baroness Meacher: My Lords, the noble Earl knows very well that NICE has issued excellent guidance in relation to the increased access to psychological therapies, and these therapies are the best way, according to the evidence, to deal with depression and anxiety. Can the Minister explain to the House what actions he will take to make sure that these evidence-based therapies are available across the country? As the Minister knows, at present they are not.

Earl Howe: The noble Baroness will remember that one of the features of the Health and Social Care Act is a duty placed on the NHS Commissioning Board to promote the quality of care. In doing that, it will promulgate commissioning guidance based on advice received from NICE. In the mandate there is another means for the Secretary of State to ensure that instruments such as NICE clinical guidelines get traction within the health service.

Lord Walton of Detchant: The Minister has given a reasoned response to the Question posed by the noble Lord, Lord Taverne. I had the privilege some years ago of chairing the House of Lords Select Committee inquiry into complementary and alternative medicine. There is evidence that certain aspects of those disciplines may be of benefit to patients. I am a strong supporter of clinical freedom on the part of clinicians. Having said that, does the Minister not fully agree with the point made by the noble Lord, Lord Taverne, to the effect that the careful inquiries carried out by the National Institute for Health and Clinical Excellent have been influential, and importantly so, in indicating clearly which forms of treatment are effective in the management of illness and disease, which should be supported by the NHS and which, if they are not evidence based, should not be paid for by public funds?

Earl Howe: I agree with the noble Lord. He will know that the guidelines issued by NICE are condition specific. They bear in mind that if there is evidence to suggest that certain procedures may not benefit patients, it would be appropriate for commissioners to consider restricting access on grounds of clinical effectiveness.

Baroness Williams of Crosby: Does the Minister agree that in situations where the mandate is to be issued—of course, it has just concluded its consultative period—the emphasis should be placed clearly on the need to recognise that mental health is of similar importance to physical health in the whole of the NHS’s projections? Could this also perhaps be an opportunity to underline the significance of NICE advice to GPs and others?

Earl Howe: My Lords, my noble friend makes an extremely important point which was of course the subject of debate during the passage of the Health and Social Care Act. She will know that, in the draft mandate, there was considerable emphasis on mental health. I shall take her views firmly into account as we go forward into finalising the text of the mandate.

10 Oct 2012 : Column 1013

Lord Patel of Bradford: My Lords, the UK is blessed with an excellent evidence base on the treatment of drug misusers. Can the Minister reassure the House that government policy around illegal drug use and treatment for drug users is based on that evidence base and not on what appears to be a policy direction of abstinence only and punishment for drug users?

Earl Howe: My Lords, yes I can. There is a real impetus within Government to look at evidence-based treatment for illegal drug users.

Baroness Wall of New Barnet: My Lords, I am surprised that in his response to the noble Lord, Lord Taverne, the noble Earl did not remind him of the health and well-being boards which make decisions now about what is happening locally. Certainly, from my experience, homeopathy has been one of the issues that the health and well-being board in Enfield has been looking at. Obviously, the evidence base is important, but should not that direction on what is locally required be made a priority?

Earl Howe: The noble Baroness makes an important point, and of course she is right that health and well-being boards will be very important forums for establishing the clinical priorities in geographic regions and then setting strategies to meet those priorities. However, in the end, it is for commissioners and individual clinicians to decide what is best for patients in a particular area.

Death Penalty: Global Abolition


3.15 pm

Asked By Lord Dubs

To ask Her Majesty’s Government what progress they have made with their Strategy for Abolition of the Death Penalty 2010–2015.

The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, the Government regularly raise the death penalty with countries that retain it and fund civil society campaigns around the world in support of abolition. There is some progress. Last year, only 21 countries carried out executions, which was a decrease by more than one-third over the past decade. However, more needs to be done and we are working towards ensuring that more countries than ever support a resolution against the death penalty at the United Nations later this year.

Lord Dubs: I thank the Minister for that helpful Answer. Will he confirm that the newly appointed Minister of Justice in Japan has said that he takes a cautious stance on the death penalty? What efforts are the Government making to nudge him down the path towards at least a moratorium? Does the Minister further agree that getting abolition would be easier if it were not for the bad example set by the United States?

10 Oct 2012 : Column 1014

Lord Wallace of Tankerness: My Lords, it is my understanding that Japan executed a man and a woman on 27 September. The Government immediately issued a statement expressing our regret at this action. They took that opportunity again to urge the Japanese authorities to impose a moratorium and have made regular representations to the Japanese authorities on the death penalty. I understand that the noble Lord has visited Japan to take forward the case for abolition of the death penalty.

I do not think that we have any evidence that our efforts are hampered by the United States. It is also the Government’s position that we make representations to the United States on the abolition of the death penalty.

Baroness Stern: My Lords, I chair the All-Party Group for the Abolition of the Death Penalty. I should like to ask the Minister about Belarus. I am sure he is aware that in Belarus people on death row are told that they are to be executed a few moments before it happens. They are then shot in the back of the head. They are buried in secret so that their relatives do not know where they are. Has the Minister made any efforts to persuade the Government of Belarus to stop these horrible practices?

Lord Wallace of Tankerness: My Lords, I pay tribute to the work of the noble Baroness, Lady Stern, as chair of the all-party parliamentary group and to the noble Lord, Lord Dubs. I understand that the noble Baroness chaired an event yesterday to take forward this issue. With specific reference to Belarus, I am sure that the House will share her appalled reaction to what has happened there. As to representations to Belarus, we recognise that it is the only country in Europe to retain the death penalty. It is one of the priority countries that the United Kingdom has identified for lobbying against the death penalty. We continue to lobby the Belarus authorities to encourage a moratorium on the death penalty as a first step towards abolition, and to impress on them that abolition of, or even a moratorium on, the death penalty would certainly open a way for improved relations with the Council of Europe.

Lord Avebury: My Lords, will my noble and learned friend consider drawing the attention of countries which have either recently reintroduced or are considering reintroducing the death penalty to the statistical evidence published by the Equality Trust? It shows that violent crime and murder are strongly correlated to the level of inequality in a society. Will the Government particularly ensure that heads of state such as President Jammeh of Gambia, who believes that murder rates can be reduced by executions, are made aware of this evidence?

Lord Wallace of Tankerness: My Lords, my noble friend raises an important issue. I am sure that that is one of the arguments that is put forward. He mentioned the United Nations. Considerable effort is being made, including by the United Kingdom Government, to ensure that when the matter comes before the General Assembly of the United Nations in the next few weeks we can increase the number of countries that will make a stand against the death penalty.

10 Oct 2012 : Column 1015

It was highly regrettable that executions took place in Gambia after a number of years when there had been no executions. Again, I assure your Lordships’ House that immediately following that execution, the United Kingdom Government, on behalf of the European Union, made strenuous representations to the Gambian Government.

Baroness Symons of Vernham Dean: Have there been any recent representations from our Government to the Government of Iran about the repellent use of the death penalty for people under the age of 18?

Lord Wallace of Tankerness: My Lords, Iran is one of the priority countries that have been identified. The House will know what I mean when I say that sometimes to get international engagement with Iran is not the easiest thing in the world. I would certainly utterly condemn execution generally, but particularly the execution of juveniles, as the noble Baroness says. We would want to call on the Iranian authorities to cease their use of the death penalty and follow the global trend towards abolition. It is not just the United Kingdom Government who want to see that; we engage with the international community generally to put pressure on Iran.

Lord Alton of Liverpool: My Lords, did the Minister see the resolution of the European Parliament calling for an immediate end to public executions in North Korea? I stood a few days ago at Tumen on the river Tumen, which separates North Korea from China, a place where people are summarily executed as they try to flee from their country. Members of your Lordships’ House will be aware that China repatriates people who escape from North Korea, some of whom are thrown into gulags, where there are 200,000 people, and some of whom are executed. Will the Minister tell the House what representations we are making in our bilateral discussions with China about the use of the death penalty there and about repatriations to North Korea; and whether we have we raised these matters directly with the North Koreans?

Lord Wallace of Tankerness: My Lords, I am not familiar with the European Parliament resolution to which the noble Lord refers, but I can confirm that we regularly make representations to the Chinese Government on the death penalty and last raised this issue with the Chinese in May this year. We will continue to do so whenever we can. I regret that I cannot give a more specific answer with regard to people who are repatriated to North Korea, but I shall ensure that the noble Lord’s concerns on that specific point are drawn to my colleagues’ attention in the Foreign and Commonwealth Office.

Baroness Whitaker: Sri Lanka, which of course retains the death penalty, comes up for peer review at the UN Human Rights Council in November. It has recently advertised for hangmen. What efforts are Her Majesty’s Government making to encourage Sri Lanka to desist, either unilaterally or through the Commonwealth?

10 Oct 2012 : Column 1016

Lord Wallace of Tankerness: My Lords, as I said to my noble friend Lord Avebury, we see the United Nations as an important forum for bringing international pressure. My noble friend Lady Warsi joined in a meeting organised by the French Government in New York a couple of weeks ago, and I think that the meeting chaired by the noble Baroness, Lady Stern, yesterday had much of its focus on what can be done to ensure that steps are taken at the United Nations. Of course, we also believe that our engagement with the Commonwealth gives us a good forum and a good number of opportunities to raise these issues. Indeed, at last year’s Heads of Government Meeting in Perth, my right honourable friend the Foreign Secretary addressed a gathering on the issue of the death penalty and the case for abolition.

Energy: Hydropower


3.23 pm

Asked By Lord Trefgarne

To ask Her Majesty’s Government what is their estimate of the cost per kilowatt-hour (before subsidy) of generating electricity by hydropower; and how many sites within the United Kingdom have been authorised for this purpose.

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma): My Lords, government records indicate that around 625 sites are currently operating in the UK. For large-scale installations over 5 megawatt capacity, the central estimate for standard run-off river hydro plants is 12.8 pence per kilowatt-hour. There are currently no published cost estimates for smaller hydro plants under 5 megawatts, but we expect to publish generation costs later this year for a range of renewable technologies drawing on evidence used in the renewables obligation and feed-in tariff.

Lord Trefgarne: My Lords, is my noble friend aware that the Environment Agency has authorised several thousand very small sites for the purposes of electrical generation to the dismay of the angling community—and, indeed, the fish?

Baroness Verma: My Lords, my noble friend mentioned the angling community, and I agree with him that it is a very important and large community. When it raises concerns, we take them very seriously. But the trust is fully engaged in ongoing work to review the Environment Agency’s hydropower good practice guidelines.

Lord Clark of Windermere: Is the Minister aware that three years ago there was an ongoing working party composed of the Forestry Commission and the Department of Energy and Climate Change looking at the difficulties of generating hydropower on public land? Could she dust down that report and see whether we can progress a bit further and contribute more to producing green energy?

Baroness Verma: My Lords, I will have to dust down the report because I have not yet sighted it.

10 Oct 2012 : Column 1017

I reassure the noble Lord that there will be opportunities coming up early in the new year as regards consultation and reviews of what we are carrying out. That would be a most appropriate time to raise concerns or issues.

Baroness Parminter: Given that renewable energy delivers green economic growth and energy security, will the Minister outline how important hydropower is in delivering the Government’s renewable energy obligations?

Baroness Verma: My Lords, hydropower is an important part of the renewable energy mix and currently contributes around 15% of the renewable generation capacity in the UK. There is further potential for hydro schemes but it is limited by size. However, we still estimate that there is a potential to increase the number of small-scale projects to produce an additional capacity of around 1 gigawatt.

The Countess of Mar: My Lords, what is the level of subsidy for hydropower compared with that for solar power and wind power?

Baroness Verma: My Lords, all the different technologies have different subsidy levels. I should like to write to the noble Countess on the different subsidy levels, if she will allow that.

Baroness Worthington: My Lords, I extend a warm welcome to the noble Baroness, Lady Verma, in her new position as Minister. She has some very large and fine Wellington boots to fill but I am sure that she will do so very ably. My question relates to pumped-storage hydro, which, as I am sure the noble Baroness will know, is a very effective way of balancing demand and supply on our electricity grid. Will the forthcoming energy Bill contain something to support this very important technology, particularly in relation to the capacity mechanism therein?

Baroness Verma: I thank the noble Baroness and your Lordships’ House for their very warm welcome. The energy Bill will seek powers to implement a capacity market as part of the reforms to the electricity market to deliver secure, affordable, low-carbon electricity. We expect that pumped-storage hydro projects would be eligible to receive capacity payments under the capacity market. Further detail will be set out alongside the introduction of the energy Bill in autumn.

Lord Foulkes of Cumnock: Has the noble Baroness had an opportunity to visit Scotland, Wales or Northern Ireland to discuss with them how we can co-operate in this important area, particularly Scotland which is a third of the land area of the United Kingdom? If she has not yet had the opportunity to make such a visit, may I encourage her to do so? I know that she will be made very welcome indeed.

Baroness Verma: I thank the noble Lord for his invitation to go to Scotland. I have not yet had time to visit it but I very much take on board the importance of hydro energy in Scotland.

10 Oct 2012 : Column 1018

Lord Avebury: What is the current state of play on the Severn barrage and what is the cost of electricity generated by it estimated to be?

Baroness Verma: My Lords, at the moment I cannot give the noble Lord the detail that he requires. Therefore, if he will allow me to write to him on the Severn barrage, I would be most grateful.

BAE Systems and EADS


3.28 pm

Asked by Lord Lee of Trafford

To ask Her Majesty’s Government what is their policy on the proposed merger between BAE Systems and EADS.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland): My Lords, earlier today the Government were advised by BAE Systems and EADS that they have decided not to proceed with the proposed merger. The two companies will remain as independent companies, each with a significant presence in the UK. The Government were clear that the merger would only ever work if it met the interests of all the parties involved. Today the two companies decided that a merger cannot be concluded.

Lord Lee of Trafford: My Lords, many of us will be disappointed at today’s breakdown in merger talks and the lost opportunity to create a unique, major, pan-European group across the defence and civil aviation sectors. Given the pressures on defence spend on both sides of the Atlantic and the move to UAVs—drones—away from more labour-intensive fighter aircraft, has not BAE Systems serious problems to face over the medium to longer term as a stand-alone plc? Does my noble friend know whether BAE Systems has a plan B? Sadly, are not further job losses inevitable?

Lord Marland: It is important that BAE Systems, as an independent organisation, now delivers a strategy and business plan to satisfy its shareholders in terms of its future. As a Government, we will be looking very closely at that because we are obviously highly dependent on the company for our defence support. However, this is a terrific British business. It is not a business that we should question. It turns over £19 billion and is therefore of significant value to the economy. It makes £1.6 billion profit, which is of significant value to the taxpayers, and employs some 35,000 people. We look to hear from BAE on this matter, but I thank the noble Lord for this very topical Question at a very apposite time.

Lord Craig of Radley: My Lords, is this outcome entirely satisfactory from the Government’s point of view?

Lord Marland: The Government have been totally clear all along. It is up to the two companies—and countries, for that matter—to decide whether this is a

10 Oct 2012 : Column 1019

suitable engagement. We also have to remember that EADS is a big employer in this country. It is responsible for the Eurocopter, which is very important to our defence needs. It employs 17,000 people and is therefore a significant independent company.

Lord Tebbit: My Lords, my noble friend said that this was entirely a matter for the company. Does that indicate that the Government would not ever in future use the golden share, which, when British Aerospace was privatised, it was decided that the Government should have because there are national interests that rate above the narrow interests of the company?

Lord Marland: Indeed, the national interests are absolutely fundamental and, of course, my noble friend was in Cabinet when those decisions were made. They were made to protect the national interest. However, the Government have not had to make a decision on that issue. The two companies have decided among themselves that they are not going to merge, and we are therefore in the fortunate position of allowing them to make that decision without us intervening.

Lord Hughes of Woodside: Did the Minister hear the reports at lunchtime which said that one of the major reasons for the breakdown in negotiations was the insistence of Angela Merkel and the German Government on greater control over the combined company? Is this so? If it is, is it not good that they did break down?

Lord Marland: I am not going to respond to the media interpretation of this breakdown. For those who wish to look at the official announcement, it related to the legal structure between the two entities, whether they would operate in the countries and how they would share the workload. Those were fundamental reasons for the breakdown. Of course the German Government will have views on this merger, as do indeed our Government and the French. It would be, as my noble friend Lord Tebbit said, totally appropriate that we should. It is important in all our national interests.

Lord Dykes: Will my noble friend advise the House, because although shareholder, investor and stock exchange issues were obviously primordial in this matter, and the apparent breakdown happened for those reasons, there must also have been some discord between the three Governments he referred to—ourselves, France and Germany? Will he take steps to rectify that in future to make sure that we have a more common position on defence requirements in Europe?

Lord Marland: The noble Lord should not suggest that there was discord between the three nations. There was discord at a company level, where it was decided that a number of the dynamics would not operate together. There is no discord between France, Germany and the UK in this matter. In fact, we have very positive relationships.

Lord Boateng: My Lords, Germany and France pursue their national interests vigorously through EADS. Will the British Government pursue the interests of the British worker and British strategic interests through BAE Systems?

10 Oct 2012 : Column 1020

Lord Marland: Indeed. It was noticeable that the previous Government did not pursue BAE’s interests with the vigour that we are doing as a Government. The Prime Minister has been on many visits supporting our defence industry. I, too, took every chief executive of our cyber companies around the Middle East, selling our incredible cyberspace technology and gaining orders as we went. I think you will find—and we do not need to dwell on it for too long—that we are promoting extensively our defence industry, which is huge. It won orders worth £5.4 billion last year, which is no small figure.

Railways: Franchises

Private Notice Question

3.34 pm

Tabled By Baroness Royall of Blaisdon

To ask Her Majesty’s Government, in the light of the reply by Earl Attlee yesterday, whether they will clarify how they intend to review the mistakes made in awarding the west coast main line franchise; what assessment they have made of the propriety of a review being conducted by a departmental non-executive director; what the cost will be of (a) reviewing the mistakes made, (b) making interim provision for operating the line and (c) reissuing the tender for the franchise; and what initial actions they have taken to avoid any other rail franchises being affected.

Lord Davies of Oldham: My Lords, I wish to ask the Question of which my noble friend the shadow Leader of the House has given private notice.

Earl Attlee: My Lords, first, I refer to the answer that I gave the House yesterday. The Secretary of State has asked Sam Laidlaw to look into the west coast procurement process with the support of independent advice. This review is due to provide findings by the end of October and it would be premature to speculate on them. A second review will examine the implications for the wider franchising programme. Both reviews will be published reports. As I said to the noble Lord, Lord Adonis, yesterday, if there are any questions about the thoroughness and integrity of Sam Laidlaw’s inquiry, I shall be happy to debate these when his findings are made public. It is in the interests of the taxpayer that the review is conducted swiftly and thoroughly, and I have every confidence that the Laidlaw review will uncover exactly what went wrong and why.

Lord Davies of Oldham:My Lords, the question asked by my noble friend Lord Adonis yesterday, to which the Minister referred, indicated that these reviews are being carried out by officials in the department that is in the middle of this debacle, and they will inevitably involve the conduct of senior officials, including probably the Permanent Secretary, and Ministers. Therefore, how can they be carried out effectively by junior Ministers? Furthermore, how can the Minister justify the point that was addressed to him in another question yesterday? Ministers received warning of flaws in the franchise process on 10 August, a month before

10 Oct 2012 : Column 1021

both the Secretary of State and the Minister of State were somewhat surprisingly reallocated to departments far away from transport.

Earl Attlee: My Lords, the noble Lord asked how Sam Laidlaw and Richard Brown can perform their duties. The answer is that they will do so with integrity, and I am sure that the noble Lord is not suggesting that they are unable to do that. He also suggested that officials have acted in bad faith. I can assure the House that there is no evidence whatever of officials having acted in bad faith. It is a serious mistake but there is no evidence of bad faith.

Lord Bradshaw: Will the noble Earl think about the fact that the franchise process is probably irretrievably broken? Will he ask his right honourable friend the Secretary of State to make a bid for room in the legislative programme in the next Session of Parliament, as I believe it is inevitable that this Act and its successors will have to be reviewed?

Earl Attlee: My Lords, I do not believe that the franchise process is inevitably broken, but that is a matter for Richard Brown to review. Professor David Begg has been reported in the Financial Times as saying:

“Because of this procurement failure we risk becoming far too negative and throwing the baby out with the bathwater. We can fix this, we’ve done it before”.

Wise words indeed, and the first and correct step is these two fairly quick inquiries.

Lord Morris of Aberavon: My Lords, is not the basic problem the division of responsibility between those who operate the coaches et cetera and those who operate the track? That is one reason why the Department for Transport has a most difficult task indeed. Is the Minister aware that when I chaired the joint inquiry into the finances and management of British Rail, rather a long time ago, not one witness ever suggested such a split? Given where we are, will the Government consider having an independent body of expertise to advise all government departments on the allocation of major contracts?

Earl Attlee: My Lords, if we need a more fundamental review of the structure of the rail industry, and in particular franchising, I am sure that the Brown review will suggest that. I redraw the House’s attention to what Professor Begg said over the weekend.

Lord Campbell-Savours: The noble Earl is deliberately avoiding answering the question that is being asked by my Front Bench, which is a question that I tried to ask yesterday. Were Theresa Villiers and Justine Greening informed by civil servants, prior to the appointment of Mr McLoughlin as Transport Secretary, of discrepancies in the calculations concerned with these bids? The answer is simply yes, they were aware, or no, they were not.

Earl Attlee: My Lords, that matter is to be determined by the Laidlaw inquiry.

Lord Martin of Springburn: My Lords, every Monday I use the Pendolino to come here and every Thursday I go back using it. Could I put on record that it is an

10 Oct 2012 : Column 1022

excellent service? Whenever it has been late it has been because it has had to slow down for the safety of the passengers. The staff are excellent and provide a good service to everyone on that train. It would be a great worry for those who come from further north if there were uncertainty over this service.

Earl Attlee: My Lords, the noble Lord is one of the first to worry about the passengers. I take this opportunity to reassure all noble Lords and passengers that the service on the west coast main line will continue after 9 December.

Baroness O'Cathain: My Lords, in view of the fact that it has been stated that the franchise system is broken and that track and train should never have been divided, the reality is—I would like confirmation of this—that, because of the European Union, we had no option but to divide train and track.

Earl Attlee: My Lords, I would not like to deny that what my noble friend has said is true.

Lord Adonis: My Lords, twice this afternoon, the noble Earl has cited Professor David Begg and his view that the franchise system can easily be rectified. Is the noble Earl aware that Professor David Begg is a non-executive director of First Group, the company to which his department awarded the franchise before it had to be cancelled, and that therefore he is not an entirely independent observer of these events? Does the noble Earl understand what the word “independent” means; it means that one should be apart from the matter that one is reviewing.

How can Sam Laidlaw, for whom I have the highest respect—he is an executive of great integrity—possibly be judged to be independent when he is a non-executive director of the department whose actions are the subject of an inquiry in this case, including the actions of senior civil servants and Ministers who are with him on the board? Does the noble Earl not recognise that the findings of such an inquiry will always be tainted until they are properly and independently conducted and that proper independent review cannot take place under a non-executive director of the very department that has conducted probably the single biggest failure in British public policy since the poll tax?

Earl Attlee: My Lords, I answered the noble Lord’s second point yesterday. On the first point, Professor Begg chaired the Commission for Integrated Transport, which was set up by the party opposite.

Lord Craig of Radley: My Lords, will the Minister confirm that the Treasury was involved in considering and approving the figures worked out by the Department for Transport that proved to be at fault? If so, will the review take account of the contribution that the Treasury has made to this fiasco?

Earl Attlee: My Lords, I am sure that the reviews will look at all causes of the fiasco. The difficulty is that the error was not obvious until officials started looking very closely at the figures in the light of the judicial review.

10 Oct 2012 : Column 1023

Scotland: Referendum

Private Notice Question

3.45 pm

Asked By Lord Forsyth of Drumlean

To ask Her Majesty’s Government whether, before the Prime Minister meets the First Minister of Scotland on Monday 15 October, they will clarify whether it is proposed to extend the franchise in any referendum on Scottish independence to 16 and 17 year-olds and, if so, by what legislative means; and what are the implications for UK electoral law.

Lord Forsyth of Drumlean: My Lords, I beg leave to ask a Question of which I have given private notice.

The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, people in Scotland deserve a referendum on Scottish independence that is legal, fair and decisive. There has been substantial progress made towards an agreement, but details are still under negotiation between the two Governments. The Government will ensure that both Houses of Parliament are kept fully informed, and the order required to provide legal competence to the Scottish Parliament will require the approval not only of the Scottish Parliament but of both Houses, as well as Her Majesty in Council.

Lord Forsyth of Drumlean: Perhaps I may respectfully suggest to my noble and learned friend that he has not answered my Question. Matters of electoral importance and the extension of the franchise are not matters to be carried out in hole-in-the-corner negotiations, however senior the parties. If the franchise is to be extended in Scotland for a referendum, is it not inevitable that we will have to extend it to 16 year-olds for all elections throughout the United Kingdom? This matter has huge implications, not least that it will bring politics into our schools. If the Government are proposing to do that, would it not be proper for them to issue a paper for consultation, to consult widely and to make no commitments whatever until they have done so?

Lord Wallace of Tankerness: My Lords, I assure my noble friend that there is nothing inevitable about what he says. I will make clear the position. The franchise for all parliamentary elections to the United Kingdom Parliament and to the devolved Parliaments has been set by Westminster. There are no plans to change this. The franchise for referendums is set out in the legislation that enables each referendum to take place. Noble Lords will recall the Parliamentary Voting System and Constituencies Act and our debates on the franchise for the AV referendum last year. If we agree to transfer power to the Scottish Parliament to hold a referendum, it is they who will determine the franchise—as is the case for elections and referendums on matters that are already devolved. It is no secret that this has been one of the issues in substantive discussions that have taken place between the United Kingdom and Scottish Governments. However, any decision—should it ever happen—by the Scottish Parliament to allow 16 and 17 year-olds to vote in an independence referendum would not affect the franchise for parliamentary elections.

10 Oct 2012 : Column 1024

Lord McAvoy: My Lords, I hoped to welcome the fact that negotiations between the two Governments on the terms of the referendum would soon be complete—but it seems that they are not. Even at this late stage, it seems that the Minister is not able to give the answers that noble Lords sought. The Government should realise that they need to make sure that there is a clear process for extending the vote to 16 and 17 year-olds, given that the law will need to be changed to allow this to happen. The UK and Scottish Governments need to set out as soon as possible the detail and timetable of how the legislation will be changed to ensure that all 16 year-olds are eligible to apply to have their names included on the electoral register. The time has long passed for the process to be concluded so that we can move on to a real debate on the future of Scotland.

Lord Wallace of Tankerness: My Lords, I will make clear what both Governments said last night. Following further discussions between my right honourable friend the Secretary of State and the Deputy First Minister Nicola Sturgeon, further substantial progress was made towards an agreement. They are on track for full agreement but, as I indicated, there are still details to be sorted out. The position of both Governments is that nothing is agreed until everything is agreed, but we are very hopeful that full agreement will be reached. As my noble friend said in his Question, and as the Prime Minister indicated in his speech to the Conservative Party conference today, he hopes to be able to reach full agreement with the First Minister next week.

I should make clear that there is no set franchise for referendums. Each referendum passed by these Houses of Parliament has had its franchise determined by the Bill setting up the referendum itself. I welcome the noble Lord, Lord McAvoy, to the Dispatch Box for, I think, his first time leading for the Opposition on Scottish matters, and I look forward to many more such times, not least—if we ever get there, as we hope to—on the Section 30 order. I entirely endorse his final comment that the sooner we can determine the process and get on with arguing the case as to why Scotland benefits from being in the United Kingdom and why the United Kingdom benefits from having Scotland in it, and hold up to scrutiny the rather threadbare arguments for independence put forward by the Scottish National Party, the better.

Lord Tyler: My Lords—

Lord Jopling: My Lords—

The Minister of State, Ministry of Justice (Lord McNally): I think that we will hear from the noble Lord, Lord Tyler, first.

Lord Tyler: My Lords, can my noble and learned friend at least reassure your Lordships’ House that if the franchise is extended to 16 and 17 year-old Scottish citizens for the referendum that is now under consideration, it would also be ridiculous not to extend it to English, Welsh and Northern Irish 16 and 17 year-olds for any following referendum on the European Union?

10 Oct 2012 : Column 1025

Lord Wallace of Tankerness: My Lords, my noble friend and I have a party manifesto commitment to votes for 16 and 17 year-olds but that is not the policy of the Government. Obviously, if there was a referendum on the European Union it would be for Parliament to determine the franchise for that. I can rather hear, if that does not happen, an amendment coming on from my noble friend.

Lord Foulkes of Cumnock: My Lords, this has not really been thought through. If there is going to be a separate register for the referendum, who is going to draw up that register, who is going to go round the houses finding out the 16 and 17 year-olds, who is going to publish the register, and who is going to bear the cost of it, the Scottish Government or the United Kingdom Government?

Lord Wallace of Tankerness: My Lords, giving the example of the AV referendum last year, it was not a case of someone having to go round and draw up a separate register for that referendum. There was a register there and we indicated what the franchise was by specifically adding Peers. As I have indicated, if that agreement is reached, it would not be this Parliament passing the legislation, as already happens with elections on devolved matters; for example, the Scottish Parliament has already passed an extension of the franchise to 16 and 17 year-olds for elections to health boards, so there is already a precedent for it having happened in Scotland.

Lord Jopling: My Lords, surely the noble and learned Lord will accept, even if he does not want to, that a reduction in the voting age to 16 and 17 would be a major constitutional change, and that normally major constitutional changes are produced and proposed only after clear consultation and very often with a Speaker’s Conference? Would he accept that, in the view of very many people, to produce this like a rabbit out of the hat next Monday is quite unacceptable?

Lord Wallace of Tankerness: My Lords, I hear and take on board what my noble friend says. I have made it clear that the position of the UK Government has been that in terms of extending the franchise to parliamentary elections, there ought to be a consensus. We have not yet identified that consensus. Although some parties have commitments to it, a consensus has not been identified for the extension of the franchise to 16 and 17 year-olds in parliamentary elections, and we have no plans to legislate on extending the franchise to 16 and 17 year-olds.

Lord McConnell of Glenscorrodale: My Lords, one or two reasonable points may well have been made by the noble and learned Lord, but one of the premises on which many of us were prepared to support the transfer of legal authority for a referendum to the Scottish Parliament was that it would be part of the negotiations that no one could say after a referendum that the rules for that referendum had been fixed, whether by the Scottish Government or anybody else. Given that the Scottish Government command an absolute majority in the Scottish Parliament, these negotiations are therefore very important indeed. Not just on the issue of the

10 Oct 2012 : Column 1026

franchise but on the issues of the timing and the financing of the different sides in a referendum, it is vital that the Government secure commitments from the Scottish Government that the rules for the referendum will be fair enough to ensure that all of us can accept the result afterwards. I would like an assurance from the Minister that the Government still have that as an objective in these final days of the negotiations.

Lord Wallace of Tankerness: I give the noble Lord the absolute assurance that our objective throughout has been to achieve a referendum which is fair, decisive and legal. As the noble Lord said, it should be a referendum where, at the end of the day and when the votes are counted, no one can claim foul play. I underline to the House the importance which we attach, and which I think the Scottish Government now attach, to the Electoral Commission having a very important part to play in the conduct of any referendum.

Lord Cormack: My Lords—

Lord McNally: I am afraid that we are at time.

Statute Law (Repeals) Bill [HL]

First Reading

3.55 pm

A Bill to promote the reform of the statute law by the repeal in accordance with recommendations of the Law Commission and the Scottish Law Commission of certain enactments, which, except in so far as their effect is preserved, are no longer of practical utility.

The Bill was introduced by Lord McNally, read a first time and ordered to be printed.

Small and Medium Sized Enterprises Committee

Membership Motion

3.56 pm

Moved By The Chairman of Committees

That Lord Evans of Watford be appointed a member of the Select Committee in place of Lord Mitchell, resigned

Motion agreed.

Jobseeker’s Allowance (Sanctions) (Amendment) Regulations 2012

Late Night Levy (Application and Administration) Regulations 2012

Motions to Approve

3.56 pm

Moved By Baroness Stowell of Beeston

That the draft regulations laid before the House on 4 and 9 July be approved.

Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 9th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 8 October.

Motions agreed.

10 Oct 2012 : Column 1027

Official Secrets Act 1989 (Prescription) (Amendment) Order 2012

Motion to Refer to Grand Committee

3.57 pm

Moved By Lord McNally

That the draft Official Secrets Act 1989 (Prescription) (Amendment) Order 2012 be referred to a Grand Committee.

Motion agreed.

Local Government Finance Bill

Bill Main Page

Report (1st Day)

3.57 pm

Relevant documents: 4th and 7th Reports from the Delegated Powers Committee.

Clause 1 : Local retention of non-domestic rates

Amendment 1

Moved by Baroness Hanham

1: Clause 1, page 2, line 4, at end insert—

“( ) paragraph 9A (regulations about payments by billing authorities to major precepting authorities out of deductions from central share payments);”

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham): My Lords—

Baroness Anelay of St Johns: My Lords, I know that we have just returned from rather a long recess, but may I remind noble Lords that, in order to enable the Minister to move her amendments, it may be helpful to leave the Chamber rather quietly?

Baroness Hanham: My Lords, the amendments in this group concern the funding of business rate relief in enterprise zones. Enterprise zones will contribute to the growth of the local and national economy through a range of measures and financial incentives. One of those incentives is a discount on business rates. The discount will apply for five years and be available up to the state aid de minimis level for businesses that move into an enterprise zone before April 2015. The Government have committed fully to fund these business rate discounts and the amendments in this group will ensure that, through regulations, we are able to deliver on that commitment.

Amendment 25 will give the Secretary of State powers to provide for the deduction of a particular amount from the central share, including by reference to amounts of rate relief awarded. This will allow billing authorities to deduct the cost of discounts in enterprise zones from their central share payments to the Secretary of State, thereby compensating them for the cost of those discounts. As this will reduce the revenue received by the Government, Amendment 25 also provides that the regulations will require the consent of the Treasury. Amendment 36 will then

10 Oct 2012 : Column 1028

allow us to ensure that the compensation for the cost of the enterprise zone discounts is shared as appropriate between the billing authority and the major precepting authorities. It does this by allowing us, in regulations, to require the billing authority to make payments to major precepting authorities so that, where appropriate, those precepting authorities are also compensated for their share of the cost of the discount.

The remaining amendments in this group are consequential on these amendments and, with this explanation, I hope noble Lords will be prepared to accept them.

Lord McKenzie of Luton: My Lords, I thank the Minister for her explanation of this group of amendments. I will just say at the start that we are of course faced on Report with quite a lot of government amendments—I think more than 50 to date—and not all of those flow directly from our Committee deliberations. We have absolutely no problem with the Bill being in the best shape it can be by the time it leaves your Lordships’ House but, following our discussions today and the further reflection we can have before Third Reading, we reserve the right to pick up further issues if we have missed them in the deliberations to date. I have no problem with the particular thrust of these amendments but would just like clarification on one point. The noble Baroness referred to the off-sets in relation to enterprise zones, which is clearly sensible, and the off-sets in relation to discretionary rate relief. Do these provisions potentially cover off-set in any other circumstance?

Baroness Hanham: My Lords, these provisions are entirely to do with enterprise zones.

Lord McKenzie of Luton: I do not want to start Committee proceedings but do they not also cover, as the noble Baroness has said, discretionary rate relief?

Baroness Hanham: My Lords, these amendments deal with everything to do with the rate discount and how it is handled in enterprise zones. The discretionary relief comes into that as well.

Amendment 1 agreed.

Amendment 2

Moved by Lord Ahmad of Wimbledon

2: Clause 1, page 2, line 10, at end insert—

“( ) paragraph 37 or 38 (regulations about designated areas or classes of hereditament), if the regulations contain provision within paragraph 39 (payments to relevant authorities).”

Lord Ahmad of Wimbledon: My Lords, government Amendment 2 delivers on a promise made by my noble friend the Minister in Committee. It gives effect to the recommendation made by the Delegated Powers and Regulatory Reform Committee that regulations that include the provision under paragraph 39 should be subject to the affirmative procedure. Paragraph 39 allows regulations made under paragraph 37, and indeed paragraph 38, to make provision for a billing authority to pass retained income to relevant precepting authorities.

10 Oct 2012 : Column 1029

Noble Lords will recall the debate in Committee about the appropriate level of parliamentary scrutiny for the detailed matters that will be dealt with in secondary legislation under this Bill. They may also recall that our careful consideration of the matters at hand in each of the sets of regulations expected under this Bill resulted in our making, from the outset, a number of regulation-making powers in this Bill subject to the affirmative procedure, in recognition of their significance and impact within the rates retention scheme.

Our approach was supported in all but one case by the Delegated Powers and Regulatory Reform Committee, whose role it is to consider such issues. It has found in all but one case that the level of parliamentary control over regulations set out in the Bill is,

“appropriate according to the relative significance of the various powers conferred”.

Today, Her Majesty’s Government are pleased to remedy that one exception identified by the Delegated Powers and Regulatory Reform Committee by bringing forward this amendment, which gives full effect to the committee’s recommendation on this point.

Amendment 3 goes further than the DPRRC’s recommendation, as it would require any regulations prepared under paragraphs 37 or 38 to be subject to the affirmative resolution procedure, irrespective of whether paragraph 39 were applicable. That was not the intention of the DPRRC, and I do not consider it necessary. With that confirmation of the Government’s positive response to the DPRRC recommendation, I beg to move the government amendment and ask the noble Lords, Lord McKenzie and Lord Beecham, not to press their amendment.

Lord McKenzie of Luton: My Lords, I start by welcoming the noble Lord, Lord Ahmad of Wimbledon, to the Dispatch Box and our deliberations on matters of local government. We have no problem with Amendment 2, which we are happy to support. We tabled Amendment 3 because at the time it was drafted we had not seen the colour of the Government’s money and their commitment to this, but we entirely accept that they have fulfilled the commitment that they gave in Committee. We are happy to support that and happy not to move Amendment 3.

Amendment 2 agreed.

Amendment 3 not moved.

Amendment 4

Moved by Lord McKenzie of Luton

4: Clause 1, page 2, line 21, at end insert—

“( ) The Secretary of State must by 30th November 2012, and after consulting representatives of local government as he thinks appropriate, form a view on whether local authorities—

(a) have been provided with sufficient detailed information regarding the business rates retention scheme; or

(b) are likely to be provided with such further information on a timely basis before, or when receiving, the local government finance report;

in order to enable all local authorities to set an informed budget and council tax for 2013/14.

10 Oct 2012 : Column 1030

( ) If the Secretary of State forms the view that all relevant information has not or will not be provided on a timely basis then he must make an order under section 1(7) of this Act.”

Lord McKenzie of Luton: Amendment 4 would impose on the Secretary of State a specific obligation to check the readiness of the business rates retention scheme. It requires the Secretary of State, after consultation with representatives of local government, to take stock of where deliberations have reached, the information provided to date to local authorities and that yet to be provided. It requires that to be undertaken by 30 November. The test is whether local authorities will each be in a position to set an informed budget and council tax for 2013-14 in due time. If—perhaps surprisingly—the Secretary of State is not satisfied that sufficient information is or will be available to local authorities in due time, it requires him to use the powers under the Bill to defer introduction of the system.

That picks up the theme of an amendment moved in Committee by my noble friend Lord Smith and is by way of a reality check. It is specifically designed to enable the Minister to give us a full update on where things stand and the timetable for completion of the process. We trust that she will be able to satisfy us on this, as our alternative would be to press for a deferral at Third Reading.

Noble Lords will note that we have a number of technical amendments on the Marshalled List where we are, our main areas of concern on which we seek to focus at Report are: the readiness of the system; the process of resetting; the level of the local share of business rates; and how the central share is to be deployed. We acknowledge that a considerable amount of work has been undertaken in recent months. Following the 155 pages of a simplified default council tax support scheme, we have had 252 pages of a technical consultation on the business rate retention scheme, which—alarmingly, as it turned out—flushed out a lot of the detail of the scheme. We have also had the benefit of seeing the presentation material used in the department’s roadshows.

However, the technical consultation—a truncated consultation—ran until two weeks ago, until 24 September. It poses 83 questions on which views are sought. Some of the matters for discussion at the end of the consultation are: changes to the number of components used in the formula grant process; the methodology of calculating the local government spending control total; what happens at the end of the current spending review; the model boardings approach to concessionary travel; changes to the use of population scarcity indicators; changes to the relative resource amount within the formula grant; distribution of grants rolled in; methodology of rolling in council tax support grant; the approach to floor dampening; police funding; determining business rate aggregates; determining proportionate shares; and determining major precepting authority shares—as well as the levy and safety net criteria.

Some of these issues may be seen as routine and no more than the usual process leading to the local government finance report, but some are clearly not and relate directly to the transition from the current

10 Oct 2012 : Column 1031

basis to the new retention scheme


However, they have a particular significance because, as we know, if left to this Government there will be no resetting of the system until 2020, so the consequences of some of the decisions to be made will endure for at least seven years. The issues raised in the consultation do not all lend themselves to a ready approval of the varying propositions. Different councils will be affected by them in different ways and some are more controversial than others. The challenge of distilling and considering responses, if undertaken genuinely, will take some time. When will the Government publish their full response?

The Minister will be aware of the major concerns expressed by the LGA about aspects of the proposals in the consultation and she may be able to comment on the substantial improvements that, even at this stage, it says are essential to be made. Its concerns include the initial holdback of £345 million to fund the safety net and capitalisation, which is effectively a further £345 million cut in local authority spending for 2013-14. Will the Minister release before Third Reading the details of the calculation which support this level of holdback? Its other issues are: the arbitrary further topslicing of the early intervention grant; including an element of growth in the business rate forecast for 2013-14; the impact of the 80:20 split for shire districts; and the funding of adjustments, particularly those relating to the settlement of appeals against rating valuations for periods prior to 2013-14. There are of course further amendments on that issue on the agenda.

Further issues include: how the AME money from SR2010 is to be applied for the benefit of local government in 2013-14 and 2014-15 and the prospect that the proportionate shares of business rate income calculation should be revised to mitigate the serious risk that large numbers of authorities will face a significant loss of funding on entry to the new system. The funding removed in respect of academies’ central functions is, it is suggested, too high and the per pupil handback for academy pupils too low. The establishment of pooling arrangements should be more flexible. Can the Minister tell us when and how each of these issues is to be addressed? Can we know that before Third Reading?

Councils are, of course, faced with the practicalities of these proposals: having to set budgets, face cuts and set council tax collection systems in place to ensure collections. The greater the uncertainty, the greater the likelihood of their building reserves to cover those uncertainties. There is also a raft of regulations, which are due to underpin the new systems—regulations which, for example, define non-domestic rating income, cover payments between billing and major precepting authorities, provide for levy and safety net payments and determine the basis on which any levy account balance is to be distributed. When will these be ready and when will they be laid? When will local authorities know their baseline funding levels, tariffs and top-ups?

We have received—yesterday, I think—an indicative timetable for regulations but virtually none of it will reach us before we have finished Report. Of course, we all know what indicative means: something to put out when we do not quite know the detail. There are also uncertainties around council tax support, which will of course affect council budgets. Some councils will

10 Oct 2012 : Column 1032

respond, and are responding, to the underfunding of this support by yet further restrictions on services. Yet apparently at almost the 12th hour there is, we understand, the prospect of a new transition grant if councils seek to protect the poorest. Perhaps we can know the current position on that. The explicit purpose of this amendment is to cause the Secretary of State to take stock before proceeding with all of this in April 2013. More particularly, it is to give the Minister the opportunity to explain to us in detail today how everything is to be in place for local authorities in time for them to set their budgets. We have drawn back from seeking to insist on a deferral of the scheme but we are entitled to have the detail if we are not to see this through to Third Reading. I beg to move.

4.15 pm

Lord Smith of Leigh: My Lords, I support my noble friend’s amendment and thank him for taking up the amendment that I moved in Committee. I need to declare my interest as leader of a local authority. I must say that I have been dealing with local government budgets for about 30 years now, and the current year is the most difficult one that I can recall. That would be so even if this Bill were not around, because already we have huge challenges with the economic circumstances. As my noble friend said, police budgeting has changed and not until after 15 November will we know whom we are going to face as our new police and crime commissioner or what their views will be. The settlement date seems to be getting later every year; the last that I heard was that we may get it in the post as a Christmas card. For those people interested in what is going on in Birmingham this week, we understand that there is going to be a new council-tax-freeze grant in the system. How might that work? We read in the papers that there are probably going to be further cuts to public spending and that local authorities will perhaps bear more than their fair share, as has happened in the past.

I thought that my noble friend dealt with all the issues in the Bill itself. However, each authority is also out to consultation on local government tax support schemes. The timescale for that is three months, and most put it out over the summer period and therefore will come back to it probably in November, or before the end of the year. Obviously we will need to respond to comments made as part of the consultation and reassess what we are doing. We have technical problems with making sure that our computers work with the new systems, whether on business support or on council tax, and we need to ensure that we have the information that my noble friend asked for. It was helpful in a sense to see the timetable that the Minister sent round, but government timetables have been known to slip in the past. As the House was hearing earlier, government departments have also been known to get things wrong, and we may need to review some of this system.

Time is becoming critical and I hope that the Minister will seriously consider the points that we are making; we are not making them simply to defer the Bill. If the Bill is going to be successful, as presumably the Government hope that it will, then we need to get the system in place properly. We need answers to some of the questions that we are raising.

10 Oct 2012 : Column 1033

Lord Tope: My Lords, as this is the first time that I am speaking on Report, I suppose that I, too, should declare my interest as a member of a London borough council and indeed as one who has had to deal, as leader of the council and leader of the opposition and before that, with budgets for probably even longer than the noble Lord, Lord Smith. He says that this year is probably the most difficult that he can remember; my only response to that is to say, “So far”. I am not sure that it is not going to get any better or easier.

I understand why the noble Lord, Lord McKenzie, has tabled this amendment; indeed, I am grateful to him for doing so. As he has rightly said, it follows on from the amendment moved by the noble Lord, Lord Smith, in Committee to seek a postponement. We on these Benches did not support that amendment and still do not. I think that we would all agree by now, whatever our views about this legislation and the position that we are in, that it is in no one’s interest at this stage to postpone. I therefore hope and believe that when the Minister comes to reply, she will be able to give us the reassurances that have been requested that, late though the process is—we all acknowledge that it is later than originally intended and certainly later than any of us would wish—we are as confident as one ever can be that it will run as smoothly as it can. If she is not in a position to answer today the very detailed questions that the noble Lord, Lord McKenzie, has put, I ask her to undertake to do so as soon as possible and, obviously, before Third Reading.

Baroness Hanham: My Lords, following on from what my noble friend Lord Tope said, the noble Lord, Lord McKenzie, has a happy style of producing a long list of questions that he peels off at a fast rate. It is not always possible to answer all of them at the same time. I readily agree with my noble friend Lord Tope that if we miss anything, we will write directly afterwards.

Like others, I am grateful to the noble Lord for explaining his amendment. It is probably worth saying that as a former leader of a London local authority, I understand the complications of late publication of the draft local government finance report and the implications it has for the budget process. However, as has been said, there is late and there is late and, while this may be slightly later than some, it is not that far out of kilter with the other announcements. I recognise that delay in the publication of the draft local government finance report would make it more difficult for local government regardless of whether the rate retention scheme did or did not exist. The existing formula grant and the new arrangements for rates retention both rely on our being able to determine how much funding local authorities are entitled to. Indeed, I think that the noble Lord said that. In the old world, the one we are passing at the moment, that means how much formula grant authorities are to receive, and in the new world, how much revenue support grant they will get and how much funding through the rates retention scheme. Under either system, the answer to the question depends on changes to formula, and potentially on decisions that might be made in the Autumn Statement, so authorities face the same delays and the same problems.

10 Oct 2012 : Column 1034

I do not pretend for a moment that any of this is ideal, but delaying the implementation of the rates retention scheme, which potentially could be the outcome of Amendment 4, although I know that the noble Lord has said that he does not want to hold anything up, would not provide authorities with any greater certainty about the funding they would receive. Whichever way we do this, either in the old way or in the new way, they still need the information. Also, it will not assist them greatly as they plan their budgets for 2013-14. So while I understand the concerns of local government and of noble Lords, we would be kidding ourselves if we thought that there would be any difference if we were still in the situation of the formula grant. As I have said, the noble Lord has put a string of questions, some of which will be answered when other amendments are moved; they will pick up on some of the issues. Perhaps I may come back to those later.

While we are not able to confirm funding levels for individual local authorities until the start of the consultation on the provisional local government finance settlement, the Government have actually provided a lot of detail and supportive information. It has been pouring out all summer. Discussions have taken place with local government representatives, including the Local Government Association, and we will publish very shortly an additional exemplification on overall funding to enable individual local authorities to develop their modelling for the budget processes. In mid November we will also start a consultation on the data that the Government propose to use when calculating the settlement. This is an integral part of the settlement process that will throw light on some of the points raised by the noble Lord. We will also be publishing in draft all the key regulations that authorities will need to take into account later this month or early next month, and indeed I think that the noble Lord has probably seen those that have been done already.

The noble Lord, Lord Smith of Leigh, returned to the attack on council tax support. Perhaps I may duck that for the moment because it is going to be very relevant to the next part of the Bill. We will be able to discuss the issues at length when we reach that point.

The noble Lord, Lord McKenzie, also asked about a timetable for responding to the consultation. The Government’s response to the consultation exercise will form part of the local government finance report. It will set out how we will set up the rates retention scheme and the detail of elements, including the tariffs and top-ups. While what we are talking about will be later than is ideal, the system stacking up behind it is that local government will have practically all the information it is going to need, just not the dots and crosses, by the time the settlement is announced. As I say, I do not take any exception to the fact that it has been drawn to our attention that the settlement will be late. It will be.

Lord McKenzie of Luton: My Lords, I thank my noble friend Lord Smith for his support for this amendment. He and the noble Lord, Lord Tope, and, indeed, the Minister are the voice of practical experience on local councils and are therefore particularly valuable. My noble friend Lord Smith referred to the fact that just this week we had further input into the system

10 Oct 2012 : Column 1035

with the council tax freeze grant. It is interesting that the Secretary of State can find the money for a council tax freeze grant at the same time as lopping the best part of half a billion pounds off council tax support, but these are issues that I am sure we will come on to. The noble Lord, Lord Tope, said that it is the most difficult so far. I think we have to watch this space under the new system.

I accept that the noble Baroness has given us some further information on timing, but I would appreciate it if she would pick up the point made by the noble Lord, Lord Tope, about reviewing all the issues that we have raised so that we can have as complete an answer as possible before Third Reading, which is our last opportunity to deal with this.

The noble Baroness said that it would be as bad if we were staying with the current system and were not changing the system. The crucial difference is that what is happening under the new system is, if the Government have their way, going to be set in stone for the best part of seven years. I genuinely suggest that that is a different perspective and a particular challenge for all local authorities. Having said that, and on the assurance that we will be getting further information before Third Reading, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

Amendment 4A

Moved by Lord McKenzie of Luton

4A: After Clause 1, insert the following new Clause—

“Independent review of the local retention of non-domestic rates

( ) No later than three years after 1 April 2013 the Secretary of State shall cause to be undertaken a comprehensive independent review of the application and outcome of the local retention of non-domestic rates provisions.

( ) Such review shall include an assessment of the extent to which available resources are meeting the spending needs of individual authorities, whether baseline funding levels and tariffs and top up, remain appropriate and fair, and the extent to which the system is incentivising growth.

( ) The review shall include a recommendation as to what changes, if any, are required under Part 5, Schedule 7B LGFA 1988, in order to ensure local authorities have adequate resources to meet spending needs.”

Lord McKenzie of Luton: My Lords, this amendment requires the undertaking of an independent review of the business rate retention system within three years of its introduction. It specifically requires a recommendation about whether there should be a resetting of the system. We have later amendments—Amendments 79 and 81—that propose additional and alternative approaches to resetting. We recognise that the changes introduced by the business rate retention scheme represent a major change to the system used for the funding of local government, and it is, in part, a step into the unknown. The changes are being introduced at the same time as the localisation of council tax benefit, together with a cut in its funding, and so far as the overall resources for local government are concerned, the change is taking place against the backdrop of a sharp reduction in the overall local government spending control total, given a further twist in July’s proposition

10 Oct 2012 : Column 1036

that government should hold back substantial funds to pay for the new homes bonus capitalisation and the safety net, not to mention the early intervention grant scheme.

There is a fundamental switch in method. Under the current system, the formula grant largely determines the extent of shares of government funding for local authorities and, while accepting that it is somewhat opaque, it has the considerable merit of reflecting local needs and resources in the allocation of grant. In the new world, the revenue support grant will play a diminishing role with the retention of 50% of the business rates being the driver of resources. Of course, not all local authorities have an equal ability to grow the business rate base. Areas such as Luton, which is highly developed with tightly drawn boundaries and significant unmet housing need, simply do not have the land available for the continuous development of additional business. It is accepted that the Government are seeking to rebalance resources at the outset of the scheme through the system of tariffs and top-ups, essentially comparing business rates collected with formula grant allocations. However, once set, it is proposed that tariffs and top-ups will not be changed or reset, other than uprated by RPI, until 2020 at the earliest.

The review which this amendment would introduce could cause an earlier reset than 2020, but would not inevitably lead to one. In that sense, it is more modest than Amendment 81, which would actually require a reset every three years to coincide with each spending review period. The Government argue that the longer the period between resets, the greater the certainty in the system and the greater the incentive. All other things being equal, there is of course some merit in this argument. It begs the question of how much incentive there is in the system in any event, given the complexity of its diverse components, and whether that incentive presents itself to all local authorities equally. Conversely, the argument for an earlier and shorter period between resets in part expresses the concern that the setting of the tariffs and the top-ups in the first place may not be fair to all authorities. Each authority’s starting point under the new system will be based on what their share of the overall funding available for 2013-14 and 2014-15 would have been under the current formula grant system but, of course, the formula has been flexed, for example, to increase allowances for sparse areas. We know that the LGA has expressed strong reservations about how the proportionate shares of business rates are determined, another key component of the calculation.

However, even if we accept for the purposes of debate that, at the start of the system, the Government have achieved their objective of no local authority being worse off as a result of its business rate base at the outset, and that there are adequate protections to ensure that all authorities can maintain services for local people—an assertion we reject—why would it follow that this position can be maintained by just uprating the tariffs and top-ups by RPI until a reset? The proposition would seem to take no account of changes to the data which feed the formula in the first place, population movements being but one. It is of course possible that the manner in which the central

10 Oct 2012 : Column 1037

share is to be deployed will counter any negative redistributive effects of the system, but we have only silence on this issue beyond the first two years. I am not optimistic about that.

Faced with the prospect of limited opportunities for raising extra revenue from council tax, a further freeze, a 2% threshold on referendum provisions, increasing restrictions overall on local government expenditure control totals, the central share of business rates being increasingly deployed otherwise than through formula grant and therefore, inevitably, on the basis of needs, poorer local authorities will only be able to look to their top-up, which is fixed in real terms, and any growth that they can muster in their business rates to meet their expenditure needs. For some, the retention of a share of the business rate growth will be fine, but for those who do not have the same opportunity, due not to ambition or leadership, but perhaps just the geography of an area, and those who also have a higher percentage of their spend currently met from grants—the more highly geared councils—the problem will be compounded.

We know that draconian cuts are already making it near impossible for many councils to deliver adequate services. The growing demand for some of those services, adult social care in particular, will make matters worse.

I stress that the amendment also requires the review to look at the issue and the extent to which the business rate retention scheme is actually incentivising growth. There are concerns that the level of the local share, at 50%, is too low, and that the overall scheme, as I said, is far too complex to produce a real incentive.

Under the Government’s proposal that there should not be a reset until at least 2020, these challenges could be left unaddressed for at least seven years. This, I suggest, is far too long. We should at least be taking stock after three years of the system so that, if necessary, it can be recalibrated. It will doubtless be argued that the Secretary of State has the ongoing power to do this anyway. I accept that there is the technical power, but some independent review of how it is working should be a necessary safeguard. This is all we seek by this amendment. I beg to move.

Lord Smith of Leigh: My Lords, again I support my noble friend’s amendment. This Bill is a huge gamble. It is the most radical shake-up of local government finance since the poll tax. Noble Lords may think that if there had been a review of the poll tax, we would not have had the riots and the other problems which led to getting rid of it. My noble friend identified two fundamental issues. First, will the proposal enable the system to be fair? Will top-ups and tariffs work fairly for all authorities—those paying the tariffs as well as those which might be in need of top-ups? We need to know that. Secondly, will it be flexible enough to meet adjustments in the system when the pressures are bound to rise?

As my noble friend has said, this proposal is being introduced at a time of extreme turbulence in the world of local government. We have the reductions in public spending, which are bearing heavily on local authorities. The timing is not brilliant for that. We also are in a period of economic uncertainty. In

10 Oct 2012 : Column 1038

Committee, the noble Earl, Lord Attlee, mentioned that local authorities should try to encourage business in their areas. Perhaps I may remind the House that that is what most local authorities have been trying to do for many years but under current circumstances it is very difficult.

Over the summer, noble Lords probably heard about the problems of JJB Sports plc, which is located in my authority, Wigan. It was once very profitable and employed a large number of people across the country. The head office and its staff were in my authority but clearly it will not be an employer for very much longer.

Again in Committee, I mentioned that the impact is not just on the private sector where fundamental changes are going on. In Greater Manchester, we have learnt of a review of the provision of acute hospital places. That will almost certainly lead to the closure of two, if not three, district general hospitals. District general hospitals are not only big employers in local areas but, through their ownership of land and property, they are major contributors to business rates.

Therefore, things can change by government policy. If we wait until 2020 for this review, there could be some significant shifts. An independent review is called for. The Government have put down some noble objectives behind the Bill. Let them see whether those objectives are being met and not run away from them.

Lord Williamson of Horton: My Lords, in this House we are perhaps tempted to call for reviews of many things that we have slight doubts about, and sometimes we have too many of these reviews. However, in this case I support the amendment. I note that later on the Order Paper we have Amendments 79 and 81, which go further than this. They would involve a three-year repeating look at the situation, whereas this amendment proposes that there should be an independent review after three years.

I support Amendment 4A because, as the noble Lord, Lord McKenzie, made clear, the situation between local authorities is not even. They have a differing ability to generate more resources from business rates. This is determined by a lot of factors which they do not control. The most obvious factor is geography. Another is that the business rates relate primarily to buildings and structures, whereas some authorities, if they were doing their best for the economy, might put their emphasis on economic activities such as IT and particularly tourism where they will have expenditure but will not necessarily generate more in the form of business rates. They will spend money on advertising, communications and transport and so on, but they will not get back much in the way of business rates because they are not putting up big buildings and nor are their citizens.

The result of what we have here running for seven years would be changes in local authorities’ resources, which would in due course have consequences for their services and council tax payers. That would vary considerably between the local authorities. I know that there is a biblical precedent for seven lean years and seven fat years, but if I was in the local authority and had seven lean years I would be pretty unhappy about it. It is therefore perfectly reasonable to have an

10 Oct 2012 : Column 1039

independent look at this. The terms of the amendment are pretty moderate, and I hope that the Government will accept it.

The Earl of Lytton: I support this amendment in general. In doing so, I must declare an interest, as this is the first occasion on which I have spoken at this stage of the Bill, as a practising chartered surveyor and a member of professional bodies with a particular interest in the non-domestic rating system.

As the noble Lord, Lord Smith of Leigh, pointed out, we are in an era of most unparalleled uncertainty. One of the greatest areas of uncertainty relates to non-domestic property and its valuation. We have at the moment a valuation list that, as I have said at earlier stages in this Bill, is based on the peak year antecedent date of 2008. It is commonly understood that values over much of the non-domestic property world have fallen materially since then. Possibly the only exception is with supermarkets, which are popularly assumed to pay too little in rates—but I leave that to one side. My concern is with the small to medium-sized businesses that are faced with large rate bills. In the course of the last month, I happened to have reason to attend to a property in the Guildford area where the rent had been reduced by negotiation between landlord and tenant from some £15 a square foot to £5 a square foot, so that the tenant, on a 3,000 square foot building, was paying around £15,000 a year, while the rates payable were over £18,000 a year.

Decisions about the occupation of business premises are increasingly being made as a result of that in effect unavoidable impost on the property and the cost of occupation. Businessmen are now looking, as they did in the early 1990s, when we were here before, at the overall costs of occupation—the rent, the rates, the service charges, and so on. So if the one bit of the system that is not negotiable is the non-domestic rates, that leads to inherent instabilities in the process and a strong impetus to try to avoid that imposition by whatever means. It has ever been thus that when businesses or any other taxpayer feel that they are being unfairly treated and there is an unreasonable impost, things start to happen. There is no plumbing the depths of ingenuity that might be devoted to this particular problem by professional bodies, rate payers and accountants, as well as various other people, all of whom are concerned with the long-term financial well-being and possibly the very survival of the business.

4.45 pm

Why do I raise this? I do so because we are dealing with the local retention of non-domestic rates and the change from having a collection agency process on the part of local government whereby it hands over part of the non-domestic rate income to central government to a process, whereby local government has a direct stake in the amount that is gleaned locally. Given the changes that have occurred in value since 2008, it will be a huge problem to predict rate income over time, not just because of businesses and their advisers doing some fancy footwork to see whether they can avoid the problem but because of insolvencies and the fact that properties that fall in value may become prey to other pressures such as redevelopment. Then, of course, you

10 Oct 2012 : Column 1040

have another possible shift to a different type of use. Although I would like a review to be much further reaching than the one proposed by the noble Lord, Lord McKenzie, there must be an independent review of how this system is working. I would hope that part of the feedback into that review considered the uncertainties about what is happening with the tax base of non-domestic rates. For that reason, I support this amendment as far as it goes.

Lord Palmer of Childs Hill: My Lords, I take a contrary view, as this amendment would add uncertainty to a situation that is already too uncertain. I believe that local authorities and the businesses to which the noble Earl referred want certainty most of all. They want to know what the rates are and roughly what local authorities will be able to retain. There will be a problem with valuations and the changes experienced by businesses. The noble Earl considered how the measure would affect businesses, but we are talking about the local retention of business rates by the local authority and how that affects that local authority’s expenditure. With respect, I suggest that the measure’s effect on businesses will be a problem whatever system we have: the current one or another. As the noble Earl rightly said, many accountants, surveyors and the like will look for ways to avoid paying taxes for all the right reasons, whatever the system. Therefore, this amendment would do no more than add further confusion and uncertainty to an already uncertain situation.

Lord True: My Lords, I take a similar position to that of my noble friend who has just spoken but I have a different perspective. I declare an interest as leader of a London local authority—the worst-funded local authority—which will be a tariff authority under the system put forward. One might therefore conclude that I would look forward to a review of these matters. In the unlikely and unfortunate event that the party opposite finds itself back in power, I take this amendment as a pledge that it will conduct a review.

I spoke at some length in Committee on the philosophy of these questions so I do not intend to detain your Lordships on the same issues now. My authority calculates on the basis of the information that has been provided so far. Through my noble friend the Minister I thank officials for their courtesy in contacting my officers. My authority currently expects to be about 17% adrift of our business rate target. We have absolutely no prospect whatever of growing business rates to get out of that hole, which is a continuation of a historic hole in which my authority has sat for a long time. That ought to lead me to say, “Yes, let’s have this review”, but, actually, that would be a rather mechanistic approach. I am not happy at all, as I made clear in Committee. Nor am I happy with the idea that there should be no reset before 2020. That position is absolutely unsustainable and there has to be a system whereby these matters are reviewed before then. I would like them to be looked at before 2013, as the amendment suggests. However, I thought that I heard my noble friend say in Committee that, although she would not be prepared to entertain an overall, general reconsideration of the system, there would be some kind of ongoing consideration of problems and issues as they arose, and there would not

10 Oct 2012 : Column 1041

always be a flint-hearted, Treasury-style response, although there would be many such responses to questions that might arise.

I agree with the noble Lord, Lord McKenzie, that we need to know more, and I am grateful for the assurances from my noble friend that we will hear more. My feeling is that if we park this away and do not have a review until 2013, everyone will say, “Oh well, there will be a review one day”, and nothing will happen. We need an ongoing dialogue, and I shall listen carefully to what my noble friend says in response. I hope she will indicate that there will be flexibility and a continuing readiness to listen, not only before 2013 but after, and that she will agree that 2020 is not the date before which no move will be made.

Lord Tope: My Lords, my noble friend referred several times to a review in 2013. While I am sure that he would like to have a review in 2013—would not we all?—I suspect that he might have meant 2016, which is the intention of the amendment. A review in 2013 is not a practical possibility, even if it were desirable.

My noble friend also said—and I rather agree with him—that the amendment from the Labour Benches is possibly the first firm election pledge that we have heard from the party opposite. I must say that I took it in a slightly different way. Although we will certainly have a new Government, of whatever composition, by 2016, this amendment seems to be an expression of doubt that the party opposite will be in a position to have a review even if it wants one. I am not quite as confident as my noble friend Lord True regarding the Labour Party’s intentions here.

My noble friends on this side have made the point that a review may very well be desirable, and of course there are a lot of uncertainties in introducing something as far-reaching as this—of course there must be, they are unavoidable. The review would also come in uncertain times, to say the least. However, I very much doubt whether we need to have in the Bill a binding commitment to a review in 2016. As my noble friend said, it would introduce yet another uncertainty. People would say, “The review is going to come. What will it say? Shall we try and hang on for another year or two?”. A review may very well be desirable at some point. It may happen in 2016, before that or afterwards. If the Government of the day, whoever they are, were able to carry out a review at such a time, in such circumstances and with such terms of reference as they chose, I would caution against having it as a legislative requirement in an Act of Parliament, three years in advance.

Baroness Hanham: My Lords, I particularly thank my noble friend Lord Tope for his final comments. We do not believe that a set review, with a timetable in the Bill, is the right way to go about this. We all accept that there will be huge volatility in the system from now on, but I have to say that there would have been huge volatility whatever happened, because the whole economic situation is such that it is unavoidable that local government could escape any changes at all. Indeed, I well recall under Labour Governments and indeed under my own Government being outraged and upset as money swam away from us to other parts

10 Oct 2012 : Column 1042

of the country. Therefore, the idea of local government money being different in different areas and changing from time to time is not new.

We do not think that the proposal to set the time for a review is sensible. As my noble friend Lord True said, this is something that will affect each local authority. They will have access, as they always have had, to the Government to make representations either individually or on behalf of themselves and others to discuss their needs and resources under the retention scheme. If they are significantly out of kilter, then of course the Government will listen to that, but I do not think that an independent review of the whole system is really going to achieve that. We will see how this goes and listen as and when any local authority wants to talk to us about it.

In addition, if we constantly—and even three years is pretty constant in terms of the changes being made—review the funding arrangements within the rates retention system, looking at tariffs, top-ups, levies and baseline funding, we will completely undermine one of the principles of the scheme, which is that local authorities should invest and benefit from growth. The noble Lord, Lord Smith, said that the scheme will differ across the country and that some places will find it easier than others but, generally speaking, I do not think that a review in three years’ time is going to help us with that. For this growth to work at all, we have to understand that the rewards from investment need time to take effect and a longer-term view will be necessary for the investments to be worth while. By resetting the system too often, you simply move away from that situation.

The Government are satisfied that they are setting out the scheme until 2020—that is, with a reset after seven years. That will enable local authorities to understand what they are able to keep and the proceeds that they are going to be able to initiate to stir up and improve local businesses and to get the economy flowing in their area. I hope the House will understand that we do not think it is right to set a formal time limit for reviewing the system, but clearly with a new system of any sort the Government are not simply going to say, “Well, there you are. Thanks, that’s it. We have no more interest in this”. That is clearly not the situation, and certainly we will always be open to having discussions as the scheme develops. With that, I hope that the noble Lord will feel able to withdraw his amendment.

Lord McKenzie of Luton: My Lords, I thank all noble Lords who have spoken in this short debate. I am sorry but not surprised at the response from the coalition Benches. In particular, in responding the noble Baroness went back to the mantra of saying that the scheme has to run until 2020 to ensure that there is an appropriate incentive, yet at the same time she said that the Government are going to keep it under review. The purpose of setting down the need for an independent review after a fixed period is, in a sense, to force the Government of the day, whoever they are, to take stock of where things are at that point. Otherwise, should this Government continue after 2015, there is a risk that nothing will happen until 2020. I thought that the position taken by the noble Lords, Lord True and Lord Tope, was, “Yes, give me a review but just

10 Oct 2012 : Column 1043

not now or just not by this mechanism”. If not by this mechanism, what will force the review? Of course, there will be ongoing discussions and representations—that is an automatic part of government business. However, that is not the same as saying, “We have a new system here”. We are placing great reliance on calculations done for tariffs and top-ups right at the start of the system and those will be locked in place for a minimum of seven years and potentially longer. That does not seem sensible to me.

That does not address the issues that the noble Earl, Lord Lytton, made about the volatility of what is happening in the valuation of property and the domestic rating system generally. Although we had some very valuable input from the noble Earl in Committee about what is happening in that system where it is administered by central government, the risks are increasingly with local government. To allow that to continue without some formal check for seven years, or maybe longer, does not seem right to me.

I am grateful for the support of the noble Lord, Lord Williamson, on this. As he said, other amendments go further, and this is a very moderate amendment. He made the important point that growing a local economy does not necessarily always equate with growing the business base rate, particularly as high-tech matters come into play.

As ever, the noble Lord, Lord Smith, put his finger on the issue. This is a huge gamble in the new system. We need to ensure that it is fair and flexible, and not only at the start of the system—and we would challenge that it is. However, even if it is, we need to ensure that fairness is maintained throughout the period before it can be readjusted by way of a reset.

The noble Lord, Lord Palmer, said that it was building uncertainty on uncertainty. I do not accept that. The right of the Secretary of State to change things on a yearly basis is embedded in the Bill. We know that the current one is not likely to do that and would not do it before 2020. This amendment simply requires the process to review the system along the way. We will not have a meeting of minds on this so I would like to test the opinion of the House.

5.02 pm

Division on Amendment 4A

Contents 198; Not-Contents 220.

Amendment 4A disagreed.

Division No.  1


Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Allenby of Megiddo, V.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bach, L.

Bakewell, B.

Barnett, L.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Best, L.

Bew, L.

Bhatia, L.

Bichard, L.

Billingham, B.

Bilston, L.

Blackstone, B.

Boateng, L.

Boothroyd, B.

Borrie, L.

Brooke of Alverthorpe, L.

10 Oct 2012 : Column 1044

Brookman, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Campbell of Surbiton, B.

Campbell-Savours, L.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Collins of Highbury, L.

Condon, L.

Corston, B.

Craig of Radley, L.

Crawley, B.

Cunningham of Felling, L.

Darzi of Denham, L.

Davies of Coity, L.

Davies of Oldham, L.

Davies of Stamford, L.

Dear, L.

Desai, L.

Donaghy, B.

Donoughue, L.

Dubs, L.

Elder, L.

Elystan-Morgan, L.

Erroll, E.

Evans of Parkside, L.

Evans of Temple Guiting, L.

Falkland, V.

Faulkner of Worcester, L.

Ford, B.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gavron, L.

Gibson of Market Rasen, B.

Giddens, L.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Graham of Edmonton, L.

Grantchester, L.

Grenfell, L.

Griffiths of Burry Port, L.

Grocott, L.

Hanworth, V.

Harries of Pentregarth, L.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollis of Heigham, B.

Howarth of Newport, L.

Howells of St Davids, B.

Howie of Troon, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Kings Heath, L.

Hylton, L.

Janner of Braunstone, L.

Jay of Paddington, B.

Jones, L.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Southwark, L.

King of Bow, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Knight of Weymouth, L.

Laming, L.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

Low of Dalston, L.

Lytton, E.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Mallalieu, B.

Mar, C.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Mawson, L.

Maxton, L.

Meacher, B.

Mitchell, L.

Moonie, L.

Morgan, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Aberavon, L.

Moser, L.

Myners, L.

Noon, L.

O'Neill of Clackmannan, L.

Palmer, L.

Pannick, L.

Parekh, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Pitkeathley, B.

Prescott, L.

Prosser, B.

Radice, L.

Ramsay of Cartvale, B.

Ramsbotham, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Richard, L.

Rooker, L.

Rosser, L.

Rowe-Beddoe, L.

Rowlands, L.

Royall of Blaisdon, B.

Sandwich, E.

Sawyer, L.

Sherlock, B.

Simon, V.

Slim, V.

Smith of Basildon, B.

Smith of Gilmorehill, B.

Smith of Leigh, L.

Soley, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Tenby, V.

Thornton, B.

Tomlinson, L.

Touhig, L.

Triesman, L.

Tunnicliffe, L. [Teller]

Turner of Camden, B.

Uddin, B.

10 Oct 2012 : Column 1045

Wall of New Barnet, B.

Walpole, L.

Warnock, B.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Williams of Baglan, L.

Williams of Elvel, L.

Williamson of Horton, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Young of Hornsey, B.

Young of Norwood Green, L.


Aberdare, L.

Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Allan of Hallam, L.

Anelay of St Johns, B. [Teller]

Armstrong of Ilminster, L.

Arran, E.

Ashcroft, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Avebury, L.

Baker of Dorking, L.

Barker, B.

Benjamin, B.

Berridge, B.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Bridgeman, V.

Brinton, B.

Brittan of Spennithorne, L.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Browning, B.

Buscombe, B.

Caithness, E.

Campbell of Alloway, L.

Cathcart, E.

Cavendish of Furness, L.

Chalker of Wallasey, B.

Chidgey, L.

Clement-Jones, L.

Colwyn, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Cox, B.

Dannatt, L.

De Mauley, L.

Deben, L.

Deech, B.

Denham, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Dundee, E.

Dykes, L.

Eames, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Eden of Winton, L.

Edmiston, L.

Elton, L.

Empey, L.

Falkner of Margravine, B.

Faulks, L.

Fellowes of West Stafford, L.

Fink, L.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Framlingham, L.

Freud, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

German, L.

Glasgow, E.

Glendonbrook, L.

Glentoran, L.

Gold, L.

Goodlad, L.

Greaves, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Harris of Peckham, L.

Harris of Richmond, B.

Henley, L.

Heyhoe Flint, B.

Hill of Oareford, L.

Hodgson of Astley Abbotts, L.

Home, E.

Howard of Lympne, L.

Howe, E.

Howe of Aberavon, L.

Howe of Idlicote, B.

Howell of Guildford, L.

Hunt of Wirral, L.

Hurd of Westwell, L.

Inglewood, L.

James of Blackheath, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

Kakkar, L.

Kilclooney, L.

Kirkham, L.

Kirkwood of Kirkhope, L.

Knight of Collingtree, B.

Kramer, B.

Lang of Monkton, L.

Lawson of Blaby, L.

Lee of Trafford, L.

Lester of Herne Hill, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Loomba, L.

Lothian, M.

Lucas, L.

Luke, L.

Lyell, L.

McColl of Dulwich, L.

10 Oct 2012 : Column 1046

MacGregor of Pulham Market, L.

Mackay of Clashfern, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Mar and Kellie, E.

Marks of Henley-on-Thames, L.

Marland, L.

Marlesford, L.

Mayhew of Twysden, L.

Methuen, L.

Miller of Chilthorne Domer, B.

Morris of Bolton, B.

Naseby, L.

Neuberger, B.

Neville-Jones, B.

Newby, L. [Teller]

Newlove, B.

Noakes, B.

Northbourne, L.

Northbrook, L.

Northover, B.

Norton of Louth, L.

O'Cathain, B.

Oppenheim-Barnes, B.

Palmer of Childs Hill, L.

Parminter, B.

Perry of Southwark, B.

Rana, L.

Randerson, B.

Rawlings, B.

Razzall, L.

Redesdale, L.

Rennard, L.

Renton of Mount Harry, L.

Roberts of Conwy, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Rogan, L.

Roper, L.

Ryder of Wensum, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharp of Guildford, B.

Sharples, B.

Shaw of Northstead, L.

Sheikh, L.

Shephard of Northwold, B.

Sheppard of Didgemere, L.

Shipley, L.

Shutt of Greetland, L.

Skelmersdale, L.

Soulsby of Swaffham Prior, L.

Spicer, L.

Stedman-Scott, B.

Steel of Aikwood, L.

Stewartby, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Strasburger, L.

Strathclyde, L.

Swinfen, L.

Taylor of Holbeach, L.

Tebbit, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Tope, L.

Tordoff, L.

Trefgarne, L.

True, L.

Tugendhat, L.

Tyler, L.

Tyler of Enfield, B.

Ullswater, V.

Verma, B.

Wade of Chorlton, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Warsi, B.

Wasserman, L.

Wei, L.

Wheatcroft, B.

Wilcox, B.

Williams of Crosby, B.

Willis of Knaresborough, L.

Younger of Leckie, V.

5.15 pm

Schedule 1 : Local retention of non-domestic rates

Amendment 5

Moved by Lord Ahmad of Wimbledon

5: Schedule 1, page 20, line 33, at end insert—

“(ba) amounts received by the Secretary of State in the year under regulations under section 99(3) (treatment of surplus or deficit in collection fund) that make provision in relation to non-domestic rates,”

Lord Ahmad of Wimbledon: Before moving the amendment on behalf of my noble friend Lady Hanham, perhaps I may take this opportunity to thank the noble Lord, Lord McKenzie, for his warm words of welcome to the Dispatch Box. The noble Lords, Lord Smith and Lord Tope, talked of their respective experiences in local government. While I cannot claim to have many decades of local government experience, I can certainly claim to have a single decade, which I hope

10 Oct 2012 : Column 1047

will add in some way to the wisdom of this debate. I am fully aware of the great experience of local government which exists in your Lordships’ House.

Throughout this year, officials in the department have met local government finance officers to discuss how to operate the rates retention system. During those discussions, local government has often asked that rates retention be operated in practice through a system currently used for council tax.

Under local government’s preferred approach, billing authorities will estimate their rating income for the coming year, and that estimate will then set the amounts to be paid to central government for the central share and to precepting authorities for their share. If the amounts actually collected in the year are different, those surpluses or deficits are rolled forward into future years. In this way, precepting authorities have certainty that their share of the income will not change during the year.

This method of operating the collection fund system is familiar to local government and has worked well for council tax. The draft regulations that we have placed in the House Library are based on the use of the collection fund in this way. The amendments ensure that we have the necessary powers and directions as to information and calculations to deliver the collection fund model wanted by local government through the regulations. With this explanation, I ask noble Lords to accept the amendments in this group.

Lord McKenzie of Luton: My Lords, I thank the Minister for his explanation of the amendments, with which I do not believe we have a problem. Perhaps he might just clarify a couple of matters. First, on the change from “paid” to “payable” in several places, I am trying to understand the extent to which the “payable”, being an accrual concept, takes account of losses on collection, bad debts et cetera. Obviously, “paid” is in a sense a cash concept, whereas “payable” is something a little different.

Secondly, Amendments 5 and 6 contain references to debits and credits required under Section 99(3) of the Local Government Finance Act 1988. Might the Minister expand a little more on that? Thirdly, on Amendments 26, 27 and 28, there is a switching of the definition to rating income from the local share. Perhaps the Minister could expand also on the reason for that.

Lord Ahmad of Wimbledon: I thank the noble Lord for his questions. I am sure that he will excuse me if I do not know the exact detail on some of the amendments, but I shall certainly ensure that he is written to in this regard. On “payable” and “paid”, I believe that one would refer to past circumstances and the other to the future, but, again, I shall ensure that the noble Lord is written to on the issues that he has raised.

Lord McKenzie of Luton: I am grateful to the Minister. If he could assure us that we might get that response before Third Reading, it would be really helpful.

Amendment 5 agreed.

10 Oct 2012 : Column 1048

Amendment 6

Moved by Baroness Hanham

6: Schedule 1, page 21, line 16, at end insert—

“(za) payments made by the Secretary of State in the year under regulations under section 99(3) that make provision in relation to non-domestic rates,”

Amendment 6 agreed.

Amendment 7

Moved by Lord McKenzie of Luton

7: Schedule 1, page 21, line 29, at end insert—

“( ) Such use for the purposes of local government in England must be on a basis which reflects the spending needs of local government and the resources available to it.”

Lord McKenzie of Luton: My Lords, this is a partial rerun of an amendment from Committee, because a significant issue remains in our minds, which is lacking in clarity. This is the use of the central share and the principles that will determine how it is to be applied on an ongoing basis. We understand and accept that the central share for 2013-14 and 2014-15 will be used for revenue support grant and that, for the first of those two years at least, the central share is likely to be insufficient to meet the full RSG amount and that it will need to be topped up. The RSG, as I understand it, is the spending control total minus whatever the local share is. The approach to the revenue support grant is one that we would recognise, have come to love and of course completely understand. It is not only an issue of the quantum of the central share but the basis on which it is to be paid.

Given that the revenue support grant becomes discretionary under the scheme, there would appear to be no criteria governing the distribution of the central share and nothing to say that it has to reflect the needs and resources of local authorities, which is what this amendment requires. The statement of intent issued in June this year by the Government makes clear that the central share will be used by central government, in its entirety, to fund the local government sector. Presumably that means that amounts currently met from any departmental dell can be met from the central share; for example, the dedicated schools grant. Is that the case and is that the intent? It is not a question of new money going to local government from the central share, which itself is money that is raised by local government.

We are close to signing off this legislation, which is why we seek as much information as possible at this stage on this issue in particular. This is particularly because of the Government’s stated intent that they do not wish to see a resetting of the system, at least until 2020, subject to the debate that we have just had. That is notwithstanding of course that we remain in the dark about how the central share is to be used other than that it is to be used for the purposes of local government in England. The fear is that, with further cuts in the offing, the revenue support grant will be diminished, so that the balance of the central share will increasingly be deployed on some other

10 Oct 2012 : Column 1049

basis, whatever it is called. In particular, the concern is that the revenues raised by local government will increasingly be used to displace spending that is, and has previously been, met directly by central government. Although some of the funding from the central share, at least in the early years when payable by revenue support grant, will reflect the relative needs and resources of local authorities, there is no assurance that this will continue to be the position in the future, except to the extent of tariffs and top-ups going forward.

This amendment simply lays down the requirement that the use of the central share must be on a basis that reflects the needs and resources of local government. It is an opportunity for the Government to let us know now the basis and principles that they wish to see govern the application of this amount—what will determine which elements of government spending will be diverted through the central share, and presumably the local government finance report process, and what will be dealt with as now. I beg to move.

Lord Shipley: My Lords, I feel that this amendment is actually extremely important. I draw the Minister’s attention to a report by the Institute for Fiscal Studies, which has confirmed that councils in the north of England are having to cut spending at almost three times the rate of councils in the south. In absolute terms of course, many councils in the north receive more revenue support per head than councils in the south, and will go on doing so, but then their needs in many places are also greater. The principles of resource equalisation continue to matter greatly, if we are to meet need fairly across the country.

This problem of deeper cuts in the north would have occurred had a Labour Government been elected in 2010, not least because Labour had plans to dismantle working neighbourhoods funding, worth several million pounds a year to many councils. However, I support the aim behind Amendment 7, because it maintains the principle of allocating spending against need and against the availability of resources, which I fear is increasingly in danger of being lost sight of, given recent settlements.

I hope that the Minister will be able to accept the amendment, or at least indicate agreement to its spirit: to ensure that resource distribution reflects the principles of need and equalisation. If the Government do not give that commitment, it implies that they are no longer in favour of resource equalisation.

Baroness Hanham: My Lords, I thank both noble Lords for their contributions. I appreciate that the use of the central share is of concern and interest, particularly once we get through the next couple of years. Amendment 7 would ensure that the central share money would always be distributed on the basis of need. We have said that the central share money will always be returned to local government. The basis of the central share going to the Government is that it will then be used for local government. The question of need and special grants will be covered by the central share. That is basically what the central share will do. I cannot at the moment give the absolutely unqualified assurance that both noble Lords, Lord

10 Oct 2012 : Column 1050

Shipley and Lord McKenzie, asked for on resource need equalisation. I am pretty sure that that is correct, but I will come back to them if there is any change to that.

I also confirm that the amount of revenue support grant in the system will reflect future spending reviews, so the Government’s view of the funding will be available to local government in advance. I hope that with that rather short explanation the noble Lord will withdraw his amendment.

Lord McKenzie of Luton: I am bound to say that I do not feel that we have made any progress on this issue as a result of that response. I am grateful for the support of the noble Lord, Lord Shipley, on the issue. It seems to me to be a core point about how this will work that the Government have some idea of what they are going to do with the central share. Yes, we understand that it will be returned on some basis to local government in England but, as I pointed out when I moved the amendment, that might just be diverting whatever resources go through the schools grant. At the moment there are some £30-odd billion, as I understand it, that could be switched for use in the central share.

With great respect, I do not find it satisfactory that we are still left substantially in the dark even about the principles to be applied, beyond any use for revenue support grant. We know that system, we know what it does, but we know that it will be discretionary not mandatory in future. That is in the Bill. I find that profoundly unsatisfactory. If the Minister said that she could say more at Third Reading, that might help me with my next move. If not, I am inclined to get this in the Bill, but I should like to hear from her first.

Baroness Hanham: My Lords, I have given an explanation of what the central share is. I understand that the noble Lord wants absolute specifics of what the central share will encompass and what it will be used for. I do not have those details. I assure him that he will have them well before Third Reading so that we can come back to it if necessary.

Lord McKenzie of Luton: My Lords, on that basis, I am prepared to withdraw the amendment on the proviso that if what comes forward does not really address the point, I will revisit it at Third Reading. I stress that it is not the detail of every pound, it is the principles that will underpin its use that I seek. I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

Amendments 8 and 9

Moved by Baroness Hanham

8: Schedule 1, page 21, line 33, after “(b)” insert “, (ba)”

9: Schedule 1, page 21, line 35, leave out “(2)(a)” insert “(2)(za) and (a)”

Amendments 8 and 9 agreed.

10 Oct 2012 : Column 1051

5.30 pm

Amendment 10

Moved by Lord Jenkin of Roding

10: Schedule 1, page 22, line 22, leave out “each year” and insert “each financial year until the end of the financial year beginning 1 April 2014,”

Lord Jenkin of Roding: My Lords, before I move this amendment I should declare my interest as a joint president of London Councils and, like a large number of other noble Lords in all parts of the House, as a vice-president of the Local Government Association. There were lengthy debates in Grand Committee about the question of 50% of the amount of business rates being retained by local authorities. I therefore really make no apology for coming back to this issue. There have been references already, in the debates on earlier amendments, to the Government having made it clear that there will be no reset until 2020 and that therefore the main structure of the system will remain as it is.

First, I can deal very briefly with Amendment 10 because I want to direct most of my speech to the two other amendments in my name in this group, Amendments 13 and 14. When a similar amendment to Amendment 10 was tabled in Grand Committee, my noble friend explained that it was the Government’s intention to retain, as I have just said, the first reset date as 2020. That means seven years without a change. It is worth reading what she said on that occasion:

“That will give local authorities much greater long-term certainty about their financial obligations to central government and the funding that they can expect to receive from government than under the current three-year spending … process”.—[Official Report, 3/7/12; col. GC 327.]

At first sight, that sounds like an attractive proposition, but the fact of the matter, as has already been indicated, is that there are considerable other uncertainties surrounding this.

If I may say so, my noble friend might have somewhat exaggerated the degree of certainty that the system in the Bill, and her plans for it, will actually produce. What she said is really not accepted by a number of local authority associations. Perhaps I might just refer to one. London Councils suggests that while the system of top-ups and tariffs might remain constant within the business rates retention element of the system, although the adjustment for revaluation may alter this, uncertainty will continue to exist around the total level of funding that local authorities can expect to receive under this system. It points out that this really is not ideal. We have of course had references to the problem of setting budgets, not just for 2013-14 but thereafter.

To some extent, this overlaps the proposition in Amendments 13 and 14. These amendments go to the heart of the policy that lies behind this part of the Bill. They highlight what appears to be a contradiction between the laudable ambitions of Ministers to transform the system in the interests of economic growth, on the one hand, and on the other of what seem to be the instincts of the government machine to retain a very firm grip on the levers of control. This is an instinct that I of course recognise but in this context deplore.

10 Oct 2012 : Column 1052

The aim of this debate and the amendments that I am moving is to elicit from my noble friend a statement of the continuing willingness of Ministers in the department to do battle against the inertia of Whitehall’s controlling instincts and to hold fast to the vision of promoting growth and development. These are arguments that we developed at some length during the debates on the Localism Act, with, I have to say, some quite tangible results—Ministers recognised that if you were giving local authorities a general power of competence, it was rather silly to have pages and pages of the Bill telling them exactly how to do it. I am not asking for the impossible here but simply for recognition that one must resist the tendency for Whitehall to control town halls.

A fundamental principle behind the localisation of the business rates is that local residents of councils that actively promote development will see the benefit of extra growth in the form of retained tax receipts. To put it simply, it is an incentive, and that is what it is intended to be. It makes very real for councils the basic economic truth that the state prospers only if the nation does. All government, not just local government, can spend only what productive businesses earn. I recognise at once that many councils already care deeply about promoting their local economies. The evidence for that is clear as they put effort into economic development through activities as diverse as the way they operate the planning system, build up the local tourism offer—that has been referred to—tackle local unemployment, find training opportunities for young people and maintain the effectiveness and attractiveness of the local high street.

The evidence also shows that communities that know that extra development brings extra funding for public services take a different attitude to what might otherwise appear to be difficult decisions—one thinks particularly of planning decisions. That is not just my own opinion or even some abstract economic theory; we have as evidence the DCLG’s own excellent analysis, overseen by Professor Henry Overman of the London School of Economics. That analysis calculates for us the precise incentive effects from retaining business rates locally. It draws on empirical economic studies and the current academic literature. It shows that on a middle-case scenario, and of course there are margins for variability on either side, the Government’s policy could generate an extra £10.1 billion of gross domestic product as the result of the incentive effect of localising just half the business rate revenue, affecting councils’ planning decisions. Half is what the Bill provides, of course, and is what is intended to remain in place until 2020.

However, the evidence shows something more than that. According to the Government’s analysis of that best academic literature, this incentive effect works in direct proportion to the share of the business rate that is retained locally. For every extra percentage share of the rate revenue localised, the gain in GDP increases too. The more of the rate revenue you localise, the more extra-economic growth you get as a result. As I say, this is the finding of the Government’s own analysis.

10 Oct 2012 : Column 1053

I come therefore to the point of the amendments. If the Government believe their own economic analysis and if they really want to see economic growth—I cannot think of any of us who would not want to see that—the economic argument is completely compelling: we should localise as much of the business rate as we possibly can.

However, that is not what my noble friends have chosen to do. Instead, the policy is to fix 50% as the central share of the rates which councils must continue to surrender to the Exchequer. One can only speculate on the reasoning behind the figure of 50%, which seems a suspiciously round number, but the effect is clear. The mechanisms required to impose the 50% central share will mean that the DCLG will need to continue to involve itself deeply and in detail in councils’ financial affairs for some years to come. Central government will be kept busy. More than that, to go back to Professor Overman’s research, if the local share is set at 50%, so is the growth incentive of the new scheme. Are we really happy to try to escape the current choppy economic waters by going at only half speed?

Amendments 13 and 14 challenge the way in which the central share arrangement in effect contradicts the commitment to growth that lies behind the scheme in this Bill. They would require the size of the central share to reduce progressively over time—I suggest a minimum of 5% a year—and the local share to increase accordingly. They take the Government’s policy intention at face value and in the light of their own published economic evidence, and impose a framework that would allow them, over time, to increase the growth incentive built into the new system and as a consequence to increase the economic output of the nation. That seems to me to be a thoroughly desirable objective.

My noble friend has said on other occasions that 50% would not stay for all time; it is the Government’s hope, as they put it, that as the economic situation improves they will be able to increase it. But if increasing it earlier actually helps to put the Government’s economic policy firmly on to a growth trajectory, we really ought to consider that. When local authorities are looking for an opportunity to get a bigger than 50% share, that share should grow over a period of years. They are asking for something that is not only in their own interests but in the interests of the nation at large. I beg to move.

Baroness Thornton: My Lords, I shall speak to Amendment 37A, tabled in my name. I need to declare some interests. I am the honorary secretary of the All-Party Group on Social Enterprise, which I founded in 2001. I am a patron of Social Enterprise UK, and the ambassador for Spota, the trade body for a sports and leisure trust and an associate of Social Business International. The last two are modestly remunerated and are listed in the register of interests. I am a founding chair of Social Enterprise UK, a former trustee of Jamie Oliver’s Fifteen Foundation, Social Enterprise London and Training for Life, and I am a lifelong member of the Co-operative movement. Noble Lords will understand that with that background I

10 Oct 2012 : Column 1054

know quite a lot about charities and social enterprises, but I have to say that local government finance does not rank highly among my areas of expertise. That is why I am so pleased that my noble friend Lord Smith and the noble Lord, Lord Shipley, have agreed to support this modest amendment because they certainly understand much more about the detail of business rate relief.

What we are considering today is not a partisan issue. It is in no one’s interests for the development of trusts to provide sports facilities, theatres, museums and libraries at the local level to be discouraged in any way, so it is disappointing that the issue has not been resolved since the Committee stage. When we last discussed this in Grand Committee on 5 July, it was clear that the Minister anticipated that it would be. She said:

“I understand the question of sports and leisure clubs is still under discussion, and perhaps we may be able to deal with that at a later stage”.—[Official Report, 5/712; col. GC 407.]

5.45 pm

I became alive to the fact that this had not been resolved fairly recently, hence the flood of e-mails to noble Lords I thought might be interested—to the Minister, her Bill team and anyone else I could think of to express my concern. Indeed, I was forwarding to many noble Lords the concerns expressed by the Museums Association and the sports trusts. This Government have a policy of supporting and promoting social enterprises, co-operatives, mutuals and charities, which I applaud. The Minister may recall that I supported the parts of the Localism Bill aimed at supporting social businesses providing local services and running local facilities. Indeed, Big Society Capital and the work of the Cabinet Office is directed at the growth of this sector, which is why the proposed new business rate regime and its potential detrimental effect on the growth of this sector is a surprise and, I am sure, an unintended consequence of this Bill. I do not think this is what the Government intended, and I am sure it is not what the Minister intended.

There is a policy contradiction at the heart of what we are discussing today. Social Enterprise UK, which has support from across the House, has asked the Cabinet Office to comment on this policy issue, and I wonder whether the Minister has discussed this matter with her colleagues in the Cabinet Office. I sent an e-mail to the Minister and her officials on 26 September with a copy of the draft amendment before us today and an offer to discuss the issue concerned. I hope that the consideration that I am sure the Bill team and the Minister have given my missives may help us today.

For example, this is what the Somerset Heritage Service has to say about the proposal in the Bill:

“The proposed new business rates regime could possibly have an impact on the Somerset Heritage Service. We are part way through a service review which is exploring the option for the whole of the Heritage Service, including our Museums Service, to move into a trust model. The mandatory relief of 80% of the business rate liability on our premises is an important consideration in this, and is currently being factored into financial projections. Any proposed change could have a detrimental effect on any

10 Oct 2012 : Column 1055

financial package agreed with the Local Authority and therefore the financial viability of the trust if it is decided to go ahead in this way”.

The Association of Independent Museums very kindly sent me a copy of a letter it received from Bob Neill MP, who is the Minister dealing with this in another place, in which he writes:

“We are … introducing these changes to how local authorities are funded in order to provide a strong local growth incentive”.

I have to say that this puzzled me and it puzzled the Museums Association, too, because we can see no way that this can promote a growth incentive. The Government’s proposals for business rates retention, being introduced in this Bill, make a massive reversal to the incentives for local authorities to transfer facilities and their associated public services to charitable organisations in their communities. In the case of leisure and cultural centres, such transfers are often made under a lease, although transfers of full ownership of assets can also be made as a publicly beneficial policy. What is now proposed will mean that local authorities will need to meet 50% of the cost of the mandatory business rates concessions provided for trusts and other charitable organisations. Previously, all this cost—80% of the total business rate cost—was met by central government.

Local authorities retaining facilities and services in-house will pay only 50% of the business rate cost. Previously they paid 100%, all of which went to the national pool. Local authorities which outsource the operation of facilities and services to private companies will keep 50% of the business rate that those companies will pay. Previously the whole of those payments were passed straight through to the national pool. Consequently, many proposals to create new local trusts or to renew or extend contracts with existing charities could be stopped in their tracks in favour of alternative options, and the local community-based trusts sector could see a progressive decline. Many more local facilities and services would be transferred, possibly to large national companies, which I am sure is not the intention of this change.

We know there are many reasons why a charitable trust offers the best way to run local facilities and services, such as leisure and cultural centres, museums and libraries. However, at a time when local authorities are prioritising the options that cost them least, many of these advantages could be set aside. As well as the long-term position, sponsoring the establishment of a new local charity can have significant short-term costs which local authorities have previously been able to justify because of the longer-term financial gains which will now disappear.

Really, the Government should rebalance this dramatic change to the business rate incentives, which otherwise would be very damaging to the community charitable sector which they say that they support with big society policies. I urge them to provide the full costs of mandatory concessions to charities, met by the central share of the business rate revenues. Such a step would leave the improved incentives to keep in-house operations or outsource to the private sector to avoid the double whammy that would hit trusts so hard.

10 Oct 2012 : Column 1056

The amendment would keep the status quo. If, however, the Minister has something more fitting up her sleeve, I am sure that everybody would be delighted. Certainly, I still hold out some hope that the Minister might be prepared to continue to discuss this very important matter.

Lord Shipley: My Lords, I declare my interest as a vice-president of the Local Government Association. I agree with my noble friend Lord Jenkin about the share of the business rates. If the central share continues at 50%, there is a disincentive to local growth by local authorities. The series of amendments tabled by my noble friend, in favour of an escalator, would result in local growth being driven more strongly. His amendment should therefore be supported.

I will concentrate on Amendment 37A. It is an extremely important amendment, the implications of which were discussed in Committee; I had thought at that time that they would have been resolved by now. I have been a strong supporter of the concept of the big society. There is enormous value in promoting volunteerism, trusts and social enterprise. I have been encouraged by the positive approach of the Government to this. However, we have to assist and encourage volunteers and not put barriers in their way, so I am genuinely puzzled by what is still contained in this Bill when these problems were indentified in Committee. Sports and leisure trusts, as we have heard, the Association of Independent Museums and Social Enterprise UK have all pointed out that the incentives to keep such public services in-house, in local authorities, or else to privatise them, will become more pronounced as a consequence of the Bill. Discussions over the summer seem not to have solved the problem. The amendment does.

Under the Bill, there will be serious consequences for expanding trusts, for the creation of new charitable trusts and for the outsourcing of running council buildings which might be better run locally by a charitable trust structure. This is because the incentives to create trusts and mutuals will be reduced and local authorities will have less incentive to grant discretionary business rate relief.

On charities and charitable trusts, councils will be compensated for only 50% of the cost of a new or additional charitable concession on business rates. Currently, all of the mandatory cost—that is, 80% of the total business rate and 25% of the discretionary cost—has been met by central government. In future, that central contribution will drop to 50% and local authorities will have to meet the other 50%. Yet local authorities retaining services and facilities in-house will pay only 50% of the business rate cost because they will split the business rate income 50/50 with the Government. Previously, local authorities have paid 100%, all of which has gone to the national pool.