The incentive for councils to create their own trusts will be reduced. Such new trusts will have to meet additional business rate costs that keeping provision in house would not. Similarly, local authorities that outsource the operation of facilities and services to a private contractor will keep 50% of the business rate that these companies pay; previously, of course, 100% of these payments went to the national pool. There is therefore in this Bill a financial incentive to privatisation.

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Trusts can involve significant transfer of buildings and facilities, and unfunded additional costs need to be avoided if more charitable trusts are to be encouraged. We really must give them the means to do the job. The solution is for the costs of mandatory and discretionary concessions to be met by the central share of the business rate revenues where there is an additional net cost to a local authority. Such a decision would remove barriers to trusts being formed.

I hope that the Minister will take on board these concerns and prevent significant additional costs arising for local authorities if they wish to transfer facilities and services to trusts. The proposal is of course revenue-neutral overall and I hope that we can secure all-party agreement to a different way of proceeding prior to Third Reading.

Baroness Eaton: My Lords, first, I must declare an interest as an elected member of Bradford Metropolitan District Council. Along with many Members of your Lordships’ House, I am also a vice-president of the Local Government Association. The amendment in the name of my noble friend Lord Jenkin is an extremely valuable contribution to the consideration of this Bill and I am very happy to support it. I should make it clear that I support the localisation of the business rate and congratulate Ministers on having pushed this policy through against much resistance. I campaigned for this change as chairman of the Local Government Association and I am pleased to see it becoming a reality.

However, today we are addressing a typical problem faced by a Government who are trying to get ideas from the drawing board of policy into the workshop of implementation when there are so many eager Civil Service helping hands to pass through on the journey. The amendment forces us to face up to a basic difficulty with the Government’s decision to set the central share of business rates at 50%. It is a problem we can even put a figure on thanks to the Government’s own evidence. As we have heard, we have a £10 billion problem.

My noble friend Lord Jenkin explained fully, competently and clearly the Government’s analysis of the scheme and the economic value of localising the business rate. I am sure that the Minister will explain what in this case trumps growth. But we have a few indications from the Government already about their reasons for setting the central share at 50%. For example, the Treasury is explicit that it will use the central share mechanism in order to continue to impose control over how much councils can spend, even though that spending is self-evidently funding itself without any impact on the national taxpayer or the deficit. This control has nothing to do with the Government’s deficit reduction plans, which are entirely necessary and correct. The expenditure and the local revenue balance out without any impact on borrowing. As I see it, it is control of the amount of spending for control’s sake alone.

With such a large central share the opportunities will be legion over coming years for the Treasury to try to share responsibility for programmes which are currently funded by the Exchequer into the ambit of the central

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share, to which the noble Lord, Lord McKenzie, has already referred. That would go beyond mere control into a zone where local ratepayers are being asked to shoulder burdens that previously would have been funded by national taxes. Perhaps I am being cynical but I feel that this would give me great concern.

The local share escalator proposed by my noble friend Lord Jenkin is a very elegant solution to resolving this problem over time. It would recall the Government to their localist and growth-focused principles, and bring the Bill closer to its advertised purpose. I am very happy to support it.

Lord Smith of Leigh: My Lords, I have a couple of amendments in my name and one which I share. Before I turn to them, I should like to comment on the significant amendment moved by the noble Lord, Lord Jenkin of Roding. I agree with much but perhaps not quite all of what he said. He is right about what it reveals about the Government’s attitude to localism, which is schizophrenic at best. In some ways they push very much on to local authorities and at other times they want to put controls in. I think that this is one on which the Treasury is not willing to trust and give up control entirely to the local authority. He is absolutely right that there should be, as I am sure there is, a consensus in this House about the need to achieve economic growth. We come from every different angle. I look at the level of youth unemployment in my area and of unemployment generally and, clearly, I want to achieve growth. My own local authority is working together with colleague authorities in Greater Manchester—perhaps I should have said that I am chair of the Association of Greater Manchester Authorities, too. We put a lot of effort and resources into trying to achieve growth. At a time when local funds are being squeezed, this is discretionary spending; it is not something that we have to do as local authorities, but we do it because we believe that it is important.

6 pm

In principle, I agree with the amendment, but the noble Lord talked about the evidence, and we need to remind ourselves that we do not have evidence—we have analysis and someone’s views about what might have happened in the past. I suspect that most of the work was done in the past, when the economy was not in a double-dip recession. What worries me is that if we are in a recession—and the IMF confirmed some of the problems yesterday; we await the outcome of the Autumn Statement, but we expect that to confirm the situation, too—to achieve economic growth will not be quite as easy. To give local authorities control of business rates will not automatically achieve the desirable outcome of growth. We have to bear that in mind. Yesterday we saw that the impact of the cuts in the public sector on the economy was much worse than predicted, because the analysis had been done in different time periods.

The two amendments in my name are very minor, and I am sure that the Minister will regard them as such. Amendment 11 tries to put something into the Bill, but perhaps we will get an assurance on this from the Minister. One of the better changes to local

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government funding in recent years has been that we have gone away from the one-year settlement on to at least a three-year one. We know that it is provisional, but it is a great opportunity for local authorities to plan for the future. That was really important in times when we were growing but absolutely essential in periods when funding is being reduced. I hope that the Minister can say that there is no lack of commitment to that longer term view of local finance.

Amendment 12 simply reflects on the fact that the Government on a number of occasions have put into the Bill the principle of consultation with local authorities. In this particular instance, they have not, and I wondered whether there was any particular reason for that.

When I was approached by my noble friend Lady Thornton, I was happy to support the amendment. She had some problems getting in touch with me, but eventually we made contact. For someone who claims not to understand the issue, she put it very succinctly, and I am pleased to support her. I do so for a number of reasons. First, my own authority of Wigan was one of the first to establish a leisure and culture trust. One way in which we looked at whether it was a good idea was to study the impact of the business rate; that was a fundamental part of why we did it, because we could use the benefit of the business rate relief to invest in additional facilities. It has proved to be a great success.

Secondly, in my area, as in many others, we did not give rate relief to local sport clubs that had a bar for a long period of time. In a sense that was sensible up to a point, but clearly there are bars and bars. Many times the bar is simply a facility for the players when they have had a difficult game. We have developed a strategy, which is widely replicated across the local authority, whereby we would give rate relief to clubs, even if they had a bar, provided that they could demonstrate to us that they were using it to support a sporting endeavour rather than simply keeping the price of beer down. That has proved to be the case, and proved to be very successful.

The third reason why I would like to support the amendment is because, under the severe financial constraints that we have at the moment, we clearly have to review all our leisure and culture provision. We do not want to close facilities but it is becoming very difficult to support some of them. In fact, we have already transferred one swimming pool to community control. It was helped because it had a very active swimming club, but it has worked really well. In the few months since it has been operational, since 1 April, the scheme has worked well; they have managed to reduce costs, because they do not have the overheads that local authorities have. That is an example of the big society; here we are giving from the public sector into the community sector. If the benefits of the business rate relief were not available to newly formed clubs, the economics of doing that would be different.

I hope that the Minister can give us assurances. In this Olympic year, of all years, we want to be seen to be doing our best to support sport and fulfil the commitment that we made as a nation, which was part of the reason why we were successful. So I hope that she can consider the amendment.

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Lord Tope: My Lords, I intended that my name should also be added to the amendments tabled by the noble Lord, Lord Jenkin. Due to some mishap, that did not happen, but the noble Lord knows that and that I support the amendments that he has moved so ably. He and my noble friend Lady Eaton and others have said much that needs to be said and, perhaps unusually in this Chamber, I do not intend to repeat it all.

I would like to add a little context to remind noble Lords of the situation here. Ever since the business rate was nationalised some 20 years ago, successive opposition parties pledged themselves to denationalise or localise it, and it has not happened. At last the coalition Government announced that they were going to localise business rates, and I think it is fair to say that that met with a general if cautious welcome across the whole of local government. It was something that all parties in local government had long wanted and argued for, and at last it was going to happen. As it became clearer and clearer exactly what was going to happen and what the intentions were, the wisdom of a cautious welcome became clearer and clearer. It was not quite as good as it was thought to be. And then the announcement came that, at least in the first year, the set-aside would be as much as 50%. For most that came as a shock rather than just an unwelcome surprise. That is the context in which we approach the amendments today.

Local government on all sides is understandably suspicious and doubtful not of the Government’s good intentions but of their fulfilment, and that the 50% rate may remain for ever. Therefore, the amendments that the noble Lord, Lord Jenkin, has proposed are a very good way, although it might not be perfect, to introduce some certainty into what I am sure is the Government’s intention: that it should not remain at 50% but should escalate so that one day we reach that dream world where 100% is retained by the local authority, when it will be a real incentive. I hope that the Government will consider very carefully the amendments and most particularly the intentions behind them.

I want to say a few words from personal experience in support of the amendment proposed by the noble Baroness, Lady Thornton. I was very interested to listen to the noble Lord, Lord Smith, talk about the Wigan Leisure and Culture Trust. In common with many local authorities, my own has considered, for perhaps a little too long, a similar sort of culture trust for the services for which I had executive responsibility right up to May. It is therefore no surprise that I am still involved with this area. We are a little way yet from a decision on it—there are inevitably many pros and cons with these things, and things to be considered—but one key aspect is the question of the NNDR. I could almost go so far as to say that that is a deal breaker or a deal maker. It makes a critical difference to the finances of this operation. Therefore, I support this amendment very strongly and what has been said by the noble Baroness, my noble friend Lord Shipley and the noble Lord, Lord Smith of Leigh. Indeed, I want to know more about the Wigan trust.

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I hope that if what we have been discussing is an unintended consequence—I want to believe that it is—active consideration is being given to what to do about it. As I said, I have a personal interest in the sense that this issue is very live with my own local authority. I know that it is equally live with a lot of other local authorities. We need to know, particularly at this budget time, what the position will be by next April.

Lord True: My Lords, I wish to follow that point and add my support to the principle of the amendment put forward by the noble Baroness, which I am afraid I saw only when I came down to collect the relevant papers before coming to the Chamber. From what she has said I understand that there is continuing dialogue on the issue. I may be reading wrongly paragraph (b) of the noble Baroness’s amendment, which states, “arising between resets”, but it appears to generalise beyond the specific issue raised of mandatory and discretionary rate relief. I am not sure whether that is the case but it is something that we would have to discuss. However, I endorse everything that has been said by the noble Lords, Lord Smith and Lord Tope, and others. I discussed this issue with two other London council leaders only yesterday.

One of the principles of wishing to promote social enterprise and trust approaches is to support the principle of local involvement, localism and local understanding. If a perverse disincentive is being created quite by accident to offload institutions to far more remote bodies or else to keep the matter in-house, that would be a great pity. In the case of mandatory rate relief, I do not know how it will evolve, but if we are to have an increasing number of charitably run academies and other institutions, these are issues over which local authorities have no control whatever under existing legislation.

I hope that the noble Baroness will not press the amendment at this stage, although I do not think that is her intention. I hope that my noble friend will listen to the points that have been raised, and to which I add my voice, as this Government have a proud record in supporting localism, social enterprise and charitable activity. I do not think that anyone, certainly not in my noble friend’s department and I would hope not in others, would wish unintentionally to cause any disadvantage. Therefore, from these Benches I add my voice in support of these amendments in principle.

6.15 pm

Lord McKenzie of Luton: My Lords, my noble friend and I have tabled Amendment 15 in this group, to which I shall speak briefly. I shall then comment on the other amendments in the group. Amendment 15 is by way of a short probing amendment to follow up a point which I think is still outstanding from Committee. It seeks to determine how the rates generated from the central rating list will feature in the business rate retention scheme. Essentially, it is asking how local government gets the benefit of this measure, if at all. Does it feed into the central share, which is then paid back through certain processes or does local government

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get half of it up front through the sharing arrangement? Of course, the central list is the list on which utilities find themselves because they cannot very easily be distributed among a range of individual authorities. It would be good to know how local government gets the benefit of the business rate on central list items.

I wholeheartedly support Amendment 37A in the name of my noble friend Lady Thornton, as do all other noble Lords who have spoken on it. An interesting facet of the background to the amendment is that we are reminded, when considering this system, that local authorities can be both payers and collectors of the business rate. That is part of the issue that the measure is highlighting. The solution of seeing mandatory relief on an ongoing basis as a new burden to be met from the central share seems to me absolutely right. I think the intention is that that should be the position between resets and that resets would be the point where you would have a squaring up and look at aggregate business rates and proportionate shares. Therefore, that would be a point at which you could recalibrate tariffs and top-ups and that would deal with the matter. I think that that was the intention behind casting the amendment in that way.

The noble Lord, Lord Jenkin, has, as ever, brought forward some interesting amendments. We cannot support all of his amendments but we can certainly support some. He took us back to the economic analysis which underpins much of the Bill and the benefits of localisation. Although the relevant report was quite heavily caveated, that does not deny the thrust of the points which the noble Lord made. Nevertheless, as my noble friend Lord Smith said, much of the analysis might have referred to a previous era. I think that the starting point of the analysis was a look at what happened in reverse, when the business rate was nationalised and the system went from being a local one to a national one. The noble Lord, Lord Tope, was ecstatic about localism having been achieved. I had understood localism to be not only about getting a share of what you collect but also about having some influence on the rate of tax. I thought that that was the noble Lord’s ambition at one stage. I am not sure whether it is his ambition now.

We have an issue with Amendment 10 in the name of the noble Lord, Lord Jenkin, which basically says that after a period of time there will be no central share. Apart from the fact that I do not think any Government will totally relinquish attempts to influence local government, the amendment raises the issue of how you rebalance the potential inequities that might arise from relying just on the business rate shares. That issue also applies to Amendments 11 and 12, particularly Amendment 12.

I entirely support Amendment 13. In fact, it coincides with the proposition that we make in Amendment 16, which basically means that you should lock in the local share so that it can never be less than 50%. I think the noble Lord’s amendment does more than that, but it achieves that objective as well.

As regards the ratchet, if the proposition is that there should be opportunities for the local share to increase, we can support that. I know that the noble Lord is not necessarily particularly wedded to the

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mechanistic approach but is addressing the concept. However, when you change the local and central shares, logic demands that you have to recalibrate and reset the system. I do not know what the Minister’s notes say about that. However, I think that once you start doing that, you have to revisit tariffs and top-ups. That follows logically from the way the system is constructed. That is tied up with the other components of the system and the debate we have just had about what happens to any component of the central share and how that is deployed back to local government. Will it be done on a basis that has regard to resources? On one basis, we might be content to see a higher central share than other noble Lords would prefer; not as high as 50%, but not necessarily right at the extreme edge of what might be achieved.

I say to my noble friend Lord Smith of Leigh that there is absolutely nothing wrong with trying to keep down the price of beer, although I accept that doing it via the rates might be pushing one’s luck a bit. Again, we have heard the voice of experience, particularly in the context of the amendment of my noble friend Lady Thornton. The concept of trying to give local authorities a three-year indication about the funding they can have must make sense. The current system is an improvement on what existed in the past. The requirement that there be consultation with local government on the setting of the shares must be absolutely right.

My noble friend’s Amendment 17 requires that the local government finance report specify the central and local shares and that it be laid before the House of Commons,

“including the full details of the consultation undertaken”,

in respect of that determination. That seems a modest but entirely reasonable amendment and it has our full support. I hope that the Minister will feel able to support it.

Baroness Hanham: My Lords, this debate has taken us through several areas. Sometimes the groupings are more interesting than the actual outcomes. We have a raft of issues that have come into the debate.

It might be worth, at the outset, repeating something that I said in Committee. All of us here who have had anything to do with local government have for years said, “Let us keep the business rate and bring it all back”. That principle—the fact that local government will retain the business rate—has been accepted in the Bill. However, the noble Lord, Lord McKenzie, made the good point that you would never have been able to keep it all. Some form of an equalisation scheme was always going to be needed, because some authorities receive far more business rate than others. The concept of keeping 100% in every local authority was clearly never going to work.

What has been accepted—and we have accepted it in our discussions today—is the principle, which was never there before, that local government should retain the business rate. Therefore, that leaves us with a movable feast and brings us back to the issue of the 50% retention. We have made it clear, and I made it clear in Committee, that the 50% is there at the moment entirely because of the economic situation. We have to make sure that local government is part and parcel of

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the resolution of the difficulties that we face. We hope that the deficit will be short-term. It does not feel much like that at the moment, but once the economic situation begins to improve, we hope that there will be a reduction in the percentages. Obviously, I cannot say today that the figure will reduce from 50% by 5% year on year. I am not completely sure that my noble friend Lord Jenkin thinks that that would happen. All I can say is that if we get improvement in the economic situation, we will be in a much stronger position to ensure that that 50% share gradually reduces.

I am not sure whether the noble Lord, Lord McKenzie, is going to debate the next amendment, regarding the heads or tails side of the coin. The answer is yes, so we will come back to that.

Amendments 12 and 17 would require specific consultation with local government on the central and local share. That is an important point. I assure the noble Lord, Lord Smith, that the draft local government finance report will set out the central and local shares, and that in itself has to be consulted upon. Therefore, there will be consultation—actually, a specific consultation within the finance report. I am not sure that anything is to be gained by adding anything to what is there at the moment.

The process of setting central and local shares has to reflect the Government’s ability to protect the interests of the taxpayer. I have said that at length and I reiterate it. It is essential that a judgment is made about the macro economy before any changes can take place. More generally, we have made clear that we would not anticipate central and local shares changing from year to year. At the moment it is going to be a ratio of 50:50, until something happens to change that, and the reset will be in seven years. We would expect the central share to remain unchanged between 2013-14 and 2020. That takes in the reset and the setting of the tariffs and top-ups. We would also expect the tariffs and top-ups to remain within the seven years. As we have discussed, if there are particular problems, it is clear that the Government will need to take them on board.

Also regarding the 50:50, and as laid out at the moment, the Government and local authorities, within the seven years and the split shares, will have a much better idea of how much there will be by way of support—what local authorities’ financial obligations are to central government and what they can receive from it. Local government has wanted that for a long time—the ability to know, year on year for a reasonable length of time, what their income and expenditure, and likely contribution to the Government, are going to be.

Again, I am not sure that Amendment 11, tabled by the noble Lord, Lord Smith of Leigh, will be necessary. Local authorities are going to know reasonably confidently what their central share will be for the next seven years until 2020. I think that he accepts that because I see him nodding.

In talking to Amendment 15, the noble Lord, Lord McKenzie, raised the issue of the central list—the element of business rates that is collected directly by central government from local government and network properties. Income from the central list will be paid

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into the main rating account, as provided for in paragraph 2(1)(a) of new Schedule 7B to the 1988 Act, as inserted by Schedule 1. I am sure that the noble Lord wanted to know that and that

Hansard

will be delighted. That will happen. Along with the other money paid into that account it will be used solely for the purposes of local government. As I said when responding to previous amendments, the central share comes back to local government. What we have not bottomed out—and I promise to do so—is exactly what that central share contains. That is what we will do before the next session. The central share will also be used to fund the revenue support grant and/or specific grants in the first couple of years.

The existence of £1.2 billion of central list money collected every year was also taken into account in the macroeconomic judgments that went into the Government’s announcement of the 50:50 share. It is not and should not be taken into account in the arithmetical calculation of the estimated business rates aggregate—I know that the noble Lord wants to know this also—that will determine the total funding in the rates retention scheme, as sought by Amendment 15. If this were to happen, it would simply increase the total aggregate rates income and, paradoxically, would thereby reduce the revenue support grant available to local government. We have heads and tails again.

I hope that I have given a reasonable explanation of why we will not be able to accept these amendments. I am not sure whether my noble friend Lord Jenkin will be persuaded to withdraw Amendment 10, but I ask noble Lords not to press the other amendments on these subjects. However, I hope that he will at least understand my explanation.

In 2012 we held technical consultations to explain to local authorities that they will be fully compensated for both the mandatory and the discretionary relief that they currently give at the point that the scheme is set up. I refer to the amendment of the noble Baroness, Lady Thornton. In addition, local authorities will be compensated for any new mandatory reliefs through the “new burdens” principle. The point has been made by the noble Lord, Lord Smith of Leigh, and others that the setting up of trusts, at the moment and in the future, would form a new burden. However, in line with the general principles that risks and rewards under the scheme would be shared between central and local government, the costs of any changes in the amount of mandatory discretionary relief given by local authorities will be shared. That point was made by the noble Baroness—that the 80% was fully funded by government in the past but now it will be shared 50:50.

We are undoubtedly aware of the concerns that have been raised by authorities about the funding of reliefs, particularly the mandatory relief—we have had that response in the consultations. We will consider the position further before taking a final decision later this year. If the noble Baroness is asking for discussions, I shall be happy to talk about this further between now and the next session if that would be helpful. If we were going to change the arrangements, we think that we could do so through secondary legislation, so let us see where we can get to with that. On the basis

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that we will have further discussions, perhaps I do not need to go any further into the benefits or otherwise of the amendments, and I look forward to talking to the noble Baroness in the next week or so.

With those comments, I hope that my noble friend Lord Jenkin will feel able to withdraw his amendment.

6.30 pm

Lord Jenkin of Roding: My Lords, I am extremely grateful to all those who took part in this debate and, in particular, to a number of my noble friends, as well as the noble Lord, Lord Smith of Leigh, who were able to support my amendment concerning the escalator. However, there is an interesting parallel between the two Front Benches: they accept the matter in principle but do not want to be pinned down to a timetable. I understand that. I understand that the timetable that we built into Amendment 14 would, if it became part of the Bill, require further legislation if it were going to be departed from, so I do not think that we can possibly advance on that.

However, the main purpose of moving the amendment has been accepted. My noble friend has reiterated her support for the principle of the progressive increase in the local share of the business rate to be retained by local authorities, but, as she said, she would prefer that to be a movable feast rather than a fixed escalator. I understand that.

With regard to the amendment very ably spoken to by the noble Baroness, Lady Thornton—she was kind enough to ply me with a number of quite long papers in support of it—if this matter is currently being discussed between the noble Baroness and her supporters on the one hand and the Government on the other, it seems to me that that is the right way to proceed. I support the Local Government Association when it raises the question of affecting competition between in-house and out-of-house services. The LGA says—and I agree—that this must be on the basis of cost and not on the basis of some sort of tax break. I am not sure how far the noble Baroness was arguing that case but if one is going to do it in-house, rather than contract it out or use the services of a private contractor, it has to be on the basis of fair competition. I understand that.

Returning to the question of a steady increase in the local share, I think, if I may say so, that my amendment has achieved its purpose. There has been a very clear statement from the Government that they are in favour of this. We shall hold them to that over the years ahead because there is no doubt that local authorities would love to see that. They do not want to be pinned to feeling that the local share has to be 50% and no more over a period. Having said that, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

Amendments 11 to 15 not moved.

Amendment 16

Moved by Lord McKenzie of Luton

16: Schedule 1, page 22, line 31, at end insert—

“The local share must never be less than 50% of the business rates aggregate.”

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Lord McKenzie of Luton: My Lords, I think that I can be brief because this follows on from the debate that we have just had. Amendment 16 seeks to enshrine in primary legislation that the local share must never be less than 50% of the business rates aggregate. Therefore, it is entirely consistent with Amendment 13, to which the noble Lord, Lord Jenkin, spoke a moment ago.

In Grand Committee on 3 July, the noble Baroness, Lady Hanham, declared in response to an extensive debate about central and local shares that,

“it would be imprudent to presume that there might never be a time when we might need to increase the central share”.—[

Official Report

, 3/7/12; col. GC 327.]

The import of that was, I think, to increase it beyond 50%. We have just had a good debate about how the business rates should be shared and about the strong desire, which we support, for the local share to be higher than 50%. Perhaps I may say to the noble Lord, Lord Jenkin, that my reticence about the formulation was not necessarily due to the mechanistic approach; it was a question of whether you can just change the central and local shares without having to address all the other ramifications and components of the system. That arises in respect of another amendment in the name of the noble Lord. I would not assert that that is the case but there is an issue there that needs to be resolved.

Of course, the difficulty in setting an increasing share, by a ratchet mechanism or otherwise, is that the shares cannot be seen in isolation. They have to be considered together with all the other components of the business rate retention scheme—the tariffs and top-ups, the levy and safety net. There is also the important question of how the central share is to be deployed. The system has to seek to promote an incentive for growth as well as ensure that local authorities have adequate resources to carry out their functions. However, it clearly also, from the government perspective, provides a mechanism to control local government expenditure, and we have seen the latest devices for taking yet further resources from local government.

The Government are controlling expenditure next year at a level above the local share by using all the projected central share—and more—in revenue support grant. However, all the indications for the future are that the revenue support grant will reduce or disappear, so the Government cannot use that mechanism to control expenditure. Their reach in this respect cannot go beyond the central share. Therefore, the prospect of increasing the central share and reducing the local share implies particularly draconian expenditure controls on local government, perhaps even if there were dramatic growth in the business rates over the period.

Therefore, the amendment does not mandate increasing local shares, although there is a strong argument for that, which we would support; it simply prevents the local share reducing beyond what the Government see as a fair starting point, and we believe that that ought to be locked into the legislation. I beg to move.

Lord True: My Lords, I do not know whether my noble friend intends to support this but I think that if she did it would be very odd. We have just heard from

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her a clear statement of the direction of travel in which the Government wish to go. She sees 50% as the minimum and we are going further. Given the state of the economy that we have inherited and still have—and there has been agreement across the House on many things during the course of the Bill—limiting, in effect, the discretion of any Government in the future in this way in respect of local government finance would probably not be, if I may borrow the word, a prudent step. Therefore, if the party opposite presses this amendment, I certainly hope that my noble friends will not be gulled into that Division Lobby.

Baroness Hollis of Heigham: In that case, what does localism mean if its revenues are available for raiding by central government when it chooses?

Lord True: My Lords, I have made a general statement of principle about public finance. I do not think that anyone who has heard my contributions to debates on this or other Bills relating to localism would doubt that I am very strongly committed to it. I would like the direction of travel to be as my noble friend has indicated. I am simply saying that ring-fencing local authority provision for ever in this manner does not seem an appropriate way to tie the hands of any future Chancellor from whatever party.

Lord Tope: My Lords, that intervention reminds me that almost exactly a year ago we had quite a long debate in your Lordships’ House about what localism is. My noble friend Lord Greaves and I tried to set down, at some length, what we think localism means and it rapidly became clear that localism means what you want it to mean. In the ensuing 12 months, it has become increasingly clear that localism means what you want it to mean. Increasing pronouncements from central government—from my Government—demonstrate that point.

I am sure that there is no one involved with this Bill and no one in local government who does not agree with the view expressed in this amendment. In that, I include the Minister, who will speak for herself. I am sure she cannot say that but I am equally sure that she agrees with the views expressed. I even dare to go so far as to say that I suspect that the Secretary of State would agree with the view expressed. However, we all have to recognise the reality that no Minister in any Government will accept this amendment. The Treasury would simply never let them. That is a hard reality of life and one that I personally regret very much. Before today, the Minister has gone a considerable way, and I hope she will in a few minutes’ time, when she replies, make it very clear to us that the genuine intention of the Government is that it should not and will not go below 50%. I was not at the Local Government Association conference—I am one of the few people here who is not a vice-president—but I read that the Secretary of State, Mr Pickles, was urging delegates there to continue campaigning for a higher share than 50%. Perhaps that was just a populist appeal at the time but I like to think that that was the sentiment.

I think we all share the view expressed in the amendment. If we are honest, I think most of us realistically understand that no government Minister,

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of whatever party or coalition, would be able to accept that amendment. I am grateful to the noble Lord, Lord McKenzie, for moving the amendment and allowing us to press the point even further. I think the point is well and truly made and accepted. When the time comes, I hope that he will feel able to withdraw the amendment.

Baroness Hanham: My Lords, I thank my noble friends behind me for their contributions. In the middle of the previous amendment, I asked the noble Lord whether he was going to move this one but I am very happy, now that he has done so, to reiterate that the Government’s intention is to increase the 50% share of local authorities as soon as there is economic acceptance that we can do so.

As other noble Lords have said, I am not sure that the noble Lord, Lord McKenzie, who was in government and who knows all about the difficulties, would believe at this stage of the Bill that we would be able to restrict the future ability of a Government if the situation ever arose—I hope that it never will and that things will get better rather than worse. I do not think that we could tie the hands of future Governments or of this Government with any statement that the share would never go up. I hope that the noble Lord will accept that. I reiterate that, as and when we get to a situation in which we can see the economy going in the right direction, further consideration might be given to that. I hope that the noble Lord will be able to withdraw his amendment.

Lord McKenzie of Luton: My Lords, I thank the noble Baroness for her reply and other noble Lords who have spoken. It seems that we are all on the same page, going in the same direction and all in agreement that the local share must not be less than 50%, but somehow we do not want to commit to that in legislation. Primary legislation does lock Governments in but not for ever. The noble Lord, Lord Tope, said that the Treasury would not allow it. If we passed it into legislation, the Treasury would have to accept it, would it not? The point of putting things into primary legislation is to stop the Treasury’s controlling instincts.

6.45 pm

Lord Tope: Does the noble Lord believe that the House of Commons, as presently constituted, would accept this amendment and thus tie the hands of the Treasury?

Lord McKenzie of Luton: Yes, my Lords. As my noble friend has advised me, that depends in large measure on how the Liberal Democrats use their votes in the other place. They are meant to be part of this Government and have some strength there. I think we have enough on the record. I am half tempted to press the matter to a vote, but I will accept what has been said and leave the matter there. I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Amendment 17 not moved.

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Amendment 18

Moved by Lord Smith of Leigh

18: Schedule 1, page 22, line 40, at end insert “no later than the end of November of each year”

Lord Smith of Leigh: My Lords, the local government finance report will be a really important document when it comes out. My two amendments in this group apply to that. In Amendment 18 we come back to this magic date of 30 November, but some date needs to be suggested. It is fundamentally important to local authorities that we should understand what is in this document within a reasonable time so that we can make budgets for future years. I recognise that it is a challenge for the department and the Secretary of State to agree to a particular date. Nevertheless, this is something that the department should aim for. We want reassurances that, due to the nature of this report, we will not be deferred even further down the line, and that we will be able to make a judgment on what each local authority’s needs will be and what the budget will be for the following year.

I do not intend to go through the detail of Amendment 73, but with this probing amendment I am trying to tease out from the Minister a good indication of what is contained within the finance report. I presume that most of these things would be in there, but I would be very grateful if she could confirm that.

Lord Jenkin of Roding: My Lords, I have three amendments in this group and I can put them swiftly to the House. Amendments 57 and 58 deal with what is to happen if there is a surplus, or what the Bill calls “the remaining balance”, left over after the tariffs and levies have been made. The Bill, as it stands, says:

“The Secretary of State may by regulations make provision about the basis (‘the basis of distribution’) on which an amount … is to be distributed”.

It seems to me that it should be a matter not for the Secretary of State but for the local authority. Therefore, Amendment 57 sets out a slightly longer procedure which involves a consultation with the local authority about what is to happen to that remaining balance—whether it should be retained or distributed—and the basis on which it should be distributed.

Secondly, it requires that to be dealt with through the local government finance report. That is what gives Parliament a say on this. Essentially, this seeks to provide, first, an opportunity for local authorities to express their views through consultation and then for Parliament to have the final say. It is not the end of the world, but I think that this is going in the direction in which we would want to move. If you are to have these elaborate procedures, it seems to me that parliamentary control is important.

Amendment 78 proposes a new clause, which again requires consultation. The clause states:

“The Secretary of State may not make any changes to national business rate policy which impact on local business rate yields without first consulting with all interested parties”.

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For the life of me, I cannot foresee circumstances in which a Government would want to do this without consulting. It seems that this is a perfectly sensible procedure to put in. If you are going to change the basis on which business rates are collected, it should be a matter for consultation.

We had a brief discussion when debating the previous amendment in which the noble Lord, Lord McKenzie, referred to the nationalisation of the business rates. I was responsible for that policy. When they were going to denationalise and decentralise, the main point was that businesses were charged rates by local authorities and had no vote. Therefore, business rates have been set nationally ever since. However, if the national rate is to be changed, there should be a process of consultation. I hope that the Government will be able to accept that.

Lord McKenzie of Luton: My Lords, we tabled Amendments 79 and 81 in this group. Amendment 79 revisits a debate we had in Committee concerning resetting—indeed, it revisits a debate we had earlier today. It requires arrangements whereby the Secretary of State must formally report on representations received from local government about resetting the system, and the outcome of the Secretary of State’s deliberations on such representations. As we have discovered, resetting is a contentious issue. The Government have made their position clear: not before 2020. However, the fear is that the system introduced will not remain robust over that period and that many councils will find themselves in difficulties.

As the Minister asserted in Committee, it is accepted that receiving and considering representations is a fundamental part of government work. The amendment seeks some transparency in the process. It seeks the formal detailing of representations so that the scale and scope of any concerns are clear. It also requires exposition of the Government’s position and reasoning in response to such representations. The Minister will doubtless say that such an amendment is unnecessary if there is an undertaking to deliver what we seek. Perhaps I would agree, but I will make it clear that we seek a process that spells out for Parliament the representations that have been received and the Government’s decisions thereon.

Amendment 81 is more specific and requires a reset every three years, to coincide with each spending review. This will entail an assessment of relative resources and of the needs of local authorities. The exclusion of the specific issues that need to be assessed—deprivation, unemployment, child poverty, the number of looked-after children, adult social care and so on—emphasises not only the important role that local government can play, but what is at stake under these proposals. I offer that amendment in particular for noble Lords who expressed themselves in favour of resetting but did not feel able to sign up to a formal review process. It might be more palatable to some noble Lords; I will be interested to know whether it is.

We thoroughly support Amendment 18, moved by my noble friend Lord Smith. We have added our names to Amendments 57 and 58, and support the noble Lord, Lord Jenkin, in tabling them.

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Amendment 73, tabled by my noble friend Lord Smith, calls for the Secretary of State to compile each year and for each authority in England a raft of information about resources, including estimates for subsequent years. As ever, it seems an entirely reasonable proposition. We also support Amendment 78, to which we added our names. This is about changes to national business rate policy that impact on local business rate yields, and the requirement for consultation. It is absolutely essential that it takes place because the ground has shifted on this. Local authorities are at risk; they are not just collectors of the business rate now. They are at risk from the consequences of how much is collected, how the system operates, and any policy changes that central government may feel inclined to make. That is a particularly important issue.

Lord Tope: My Lords, I will say briefly that the mishap to which I referred earlier has occurred again with these amendments. My name should have been on the amendments of the noble Lord, Lord Jenkin. It did not happen, but my support is there. Again, I will not repeat what he said. He made the case very well, and we are all keen to hear what the Minister has to say in response. My noble friend Lord Jenkin again confessed to being the man who nationalised the business rate. I think that we have all long since forgiven him for the errors and misdeeds of his youth. He has more than compensated for them in the years since.

Baroness Hanham: My Lords, I will start with Amendments 73, 79 and 81. I realise that that may seem slightly perverse given how they are laid out in the list, but it makes reasonable sense. Amendment 73 requires the publication of a raft of information that is already published by my department and is part of statistical releases that are all published as well—and will be in future. To say explicitly in the Bill that they must be published and laid out would be a quite unnecessary duplication. All the information will be set out in each year’s local government finance report, and so will be available to all those who want it.

Amendments 79 and 81 seek to ensure that needs are explicitly taken into account after the system is up and running, by providing for authorities to be able to make representations calling for a reset, and for the Secretary of State to make a reassessment of the system every three years. We discussed much of that and I will not again go through the arguments I made. I just need to say that to enable an effective incentive for economic growth, we need to give local authorities certainty about the length of time they will keep the rewards from generating local economic growth. That is the answer I gave earlier and that is what I say again. Frequent resets on the system would undermine this, to the detriment of the national economy and of local authorities. I hope that in due course noble Lords will not press those amendments.

Amendment 18 seeks to ensure that the local government finance report must be laid before the other place by 30 November each year. The amendment is both impractical and unhelpful. When discussing the previous group of amendments, I explained that the local government finance report cannot be laid this year until after the Autumn Statement. The Chancellor

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recently announced that this would take place on 5 December. I also recognise the complications of this for local government budget setting, regardless of whether the rate retention scheme is introduced. I will not go back over the arguments presented to the House a moment ago, and I hope that the noble Lord, Lord Smith, will withdraw Amendment 18 on the basis that we have already discussed the issue.

Amendments 57 and 58 were tabled by my noble friend Lord Jenkin, as well as by the noble Lords, Lord McKenzie and Lord Beecham—and by my noble friend Lord Tope in absentia. They seek to reverse the changes made in the other place to the way in which the Government will distribute surplus levy income. I sympathise with the intentions of the noble Lords who tabled the amendments. The Government’s intentions were very similar when we introduced the Bill in the other place at the beginning of the year. However, after further consideration we recognised that specifying the basis for distributing the surplus levy in the local government finance report, as opposed to in regulations, was not advantageous for local government. Therefore, in responding to the amendments, I shall go through in some detail the advantages of the Government’s approach. I hope that my explanation will address the concerns of noble Lords and underline why I will not be able to support their proposed approach.

I remind the House that the levy on disproportionate gain is a key part of the business rates retention scheme, the safety net in particular. The money collected will be used for one purpose only: to fund safety net payments to local authorities that see significant reductions in their retained business rates incomes. The Government have always made it clear that, if any levy collected is not required to fund the safety net, it will be completely redistributed to local government. We are committed to this principle and we will not hold on to larger and larger surpluses.

7 pm

The amendments propose that the Secretary of State should consult with relevant local authorities when determining how much levy surplus to redistribute and how to do so. The amendments would require that this, and the amount to be paid to each individual local authority, would be set out in the annual local government finance report. I accept that this is admirable in principle but we think that this would have inadvertent consequences for local authorities. If passed, the amendments would be at the cost to local authorities of timelier and more certain surplus levy distribution payments.

Setting out how the levy will be distributed in the local government finance report will mean that, when the Government have taken a decision to distribute surplus levy back to local authorities, these authorities will have to wait in excess of 18 months before they see the money and can use it to fund vital services. This drawn-out approach was of great concern in the other place, where it was described as “a recipe for uncertainty”.

The opposition Front Bench in the other place proposed that, once a decision to distribute surplus levy was made, the Secretary of State should have to hand over this money within the following financial

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year, in order to give local authorities more certainty about what they would receive and when they would receive it. The Government considered these points and agreed that a long delay was not acceptable. The Bill was therefore amended so that the process for distributing levy surplus, and the basis of distribution, will be set out in regulations. This will mean that payments can take place immediately after the decision to distribute surplus levy is taken.

I am certain that scrutiny of these regulations will be robust. The Government will consult widely on the content of the regulations over the coming months, including with the Local Government Association and others. Furthermore, they will be affirmative regulations, subject to the approval of both Houses of Parliament. This provides appropriate parliamentary oversight.

The earliest that surplus levy income can be redistributed is October 2014, the point at which local authorities will provide final data on their business rates income for the first year of the scheme. Eligibility for both safety net and levy payments will be calculated then. Regulations will be in place well before then.

I hope that this explanation provides noble Lords with adequate assurance of both consultation with local government and parliamentary scrutiny. I hope that noble Lords will recognise the benefits of this approach, which is exactly what local government would want. On these grounds, I hope that noble Lords will withdraw their amendments.

Finally, I turn to Amendment 78 on the impact of changes in national business rate policy. I thank my noble friend for the explanation of his amendment. I am sure that the House recalls the helpful discussion we had in Committee in July. However, I am also sure that my noble friend will not be surprised to hear that I do not consider such a provision appropriate.

Under the current system, where locally collected business rates are redistributed to local authorities through the formula grant process, changes to national business rates policy do not affect the level of funding each local authority receives. The dynamic of that will alter under the business rates retention scheme. Changes in national business rates policy could both increase and decrease business rates income and therefore the level of funding available to local authorities. This relationship is at the heart of the Government’s proposals to incentivise growth.

However, I do not agree with my noble friend’s argument that a requirement for consultation about such changes should be placed in the Bill. I firmly believe that the Government need to retain the ability to respond decisively to circumstances so that they can act in the wider interests of the country. These decisions are best taken by the Chancellor in the Budget or Autumn Statement, when matters of taxation can be considered in the round. In many cases, the Government will consult upon any changes, although I appreciate that may not always be the case.

As I explained in Committee, changes to reliefs are a matter for the Chancellor. The deferral scheme, which gives businesses the opportunity to defer payment of 60% of the increase in their 2012-13 business rates bills as a result of the RPI uprating, was announced in

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the Autumn Statement. If the Government had consulted on that, businesses would have waited at least two or three months longer to receive the benefit, which in some cases could be the difference between a business closing or remaining open. The extension of small business rate relief is another good example of this.

In cases where changes in national business rate policy would result in a cost to local authorities, this will be covered under the new burdens policy. This means that the Government will fully fund the additional cost in line with our commitment to keeping the pressure on council tax down as far as possible.

I hope that my noble friend will agree that the new burdens policy and the standard practice of consultation provide local government with clear assurances. On that basis, I hope that he will withdraw his amendment.

Amendment 18 withdrawn.

Amendment 19

Moved by Baroness Hanham

19: Schedule 1, page 23, line 10, leave out “sub-paragraph (2)” and insert “this paragraph”.

Amendment 19 agreed.

Amendment 20

Moved by Lord Jenkin of Roding

20: Schedule 1, page 23, line 16, at end insert—

“(4A) Regulations under this paragraph and under paragraph 8 may, subject to such adjustments as may be specified in the regulations, define the non-domestic rating income of a special authority by reference to the amount which would be payable to it in respect of the year under sections 43 and 45 if—

(a) the authority’s non-domestic rating multiplier and small business non-domestic rating multiplier for the year were equal respectively to the non-domestic rating multiplier and small business non-domestic rating multiplier for the year, so far as relating to England, determined in accordance with Part 1 of Schedule 7, and

(b) the authority acted diligently.”

Lord Jenkin of Roding: My Lords, this amendment deals with the situation of the City of London as a “special authority” for non-domestic rating purposes; that is, of course, a statutory expression. Perhaps it would help if I explained a little of the background to the City of London’s particular treatment for non-domestic rating purposes.

I should say at the outset that this is a probing amendment; I do not wish to divide the House on it. It is intended to provide an opportunity for the Minister to clarify why this Bill does not refer expressly to the City’s position and to confirm that this will be dealt with in regulations. Previously it has always been a matter of primary legislation. Now, if the Government can tell me that that will happen, it will be in regulations.

The background to the City’s particular treatment arises from the fact that the City is overwhelmingly a place for doing business and not for living in. Fewer than 7,000 individuals are currently on the constituency register of electors, and of course the number of actual households is far lower than that. So the council

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tax base is, in relative terms, very small. On the other hand, the City currently provides local services to more than 300,000 people who come in every day to work.

The starkness of the imbalance between the local services needed to meet the needs of the daytime population and the income generated from the residential tax base is illustrated by the effect on the City of London when the community charge, the predecessor of the council tax, was introduced. Without special provision for the City, its residents would have had to pay an annual charge of £8,700 each, equivalent to about £19,000 in today’s money. In other words, the general formula simply did not begin to work, given the City’s unusual demography.

It was for this reason that arrangements were made to treat the City as a special authority under that legislation. This had the effect of reducing the amount payable by residents to realistic levels. The cost of local services was to be met in part by businesses through a rate retention mechanism, with the City also being given the ability to levy a small local business rate. That is the system that operates today and which is, I think, a matter of general consent from the point of view both of the commercial population of London and of the residents.

I hope that it will be apparent from this short explanation that the City of London regards the retention of this arrangement as important, not least for the safeguarding of its 7,000 residents. However, there is no reference in the Bill whatever to the City as a “special authority”. The DCLG, my noble friend’s department, has indicated in its technical consultation document, published in July, that the Government do not intend to disturb the status quo. My amendment tries to reflect that. I gather that the arrangement is assumed to be dealt with later by regulations, but it is not at all clear why the status of the City as a special authority has been omitted from the Bill. Accordingly, my amendment seeks to reinstate the existing references to “special authority” contained in the Local Government Finance Act 1988.

The question is whether the arrangement should be in the Bill or whether it is sufficient to deal with it by regulations. It has always been in the Act and the City will be disappointed if it is not going to be in this Bill today. The amendment gives the Minister an opportunity to confirm that the situation is indeed as I have described and perhaps to indicate to the House why a reference to it has not been included in the current Bill. I beg to move.

Lord Ahmad of Wimbledon: My Lords, I am grateful to the noble Lord, Lord Jenkin, for raising this amendment, and I hope that I can provide him with the reassurances that he seeks. I have knowledge at a personal level of the City and its qualities and recognise the benefits that it brings to our country.

As the noble Lord notes and so aptly describes, under the current system the City of London is allowed to keep extra resources from business rates. First, the City has the power to raise additional funds from its business rate payers through a higher non-domestic multiplier. This is known as the City of London premium. Secondly, the City is also allowed to retain £10 million of extra business rates income. This is

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known as the City of London offset. These extra resources are given to the City in recognition of its low council tax base.

Her Majesty’s Government agree that the City of London should be able to retain in full the City offset and any extra revenue that it can generate from the City premium. We made this clear in this summer’s technical consultation, to which the noble Lord referred. Moreover, we have placed in the House of Lords Library the draft Non-Domestic Rating (Rates Retention) Regulations 2012. The regulations will determine through Schedule 1 the income to be included in the rates retention scheme. Paragraph 1(2) of Schedule 1 states that the income of a special authority, which also means the City of London, should be calculated on the basis of the national multiplier and not the special authority’s multiplier. The same paragraph states that the calculation of income should be reduced by the value of the city offset, which is around £10 million as I previously stated.

Paragraph 1(2) of Schedule 1 to the draft regulations will therefore ensure that any additional revenue from the City premium and the City offset will be retained in full by the City of London. I hope that this clear statement of government policy, together with the draft regulations to which I have referred, gives the noble Lord the reassurance that he and the City of London require. I invite him to withdraw the amendment.

7.15 pm

Lord Jenkin of Roding: I am very grateful for my noble friend’s very clear and specific assurances on that basis, but I am sure that he will understand that the City is a little upset that it is being dealt with through subordinate legislation whereas hitherto it has always stood on primary legislation. However, if the Government have made up their mind that that is how they are going to do it, so be it, and I have no doubt that the City authorities will come to terms with it afterwards. However much we may be trying to rebalance the economy, the City is such an important part of it that the authorities should always recognise that this arrangement must be preserved if it is going to be able to perform its role for the benefit of the very large number who come in every day and work there. I beg leave to withdraw the amendment.

Amendment 20 withdrawn.

Amendment 21

Moved by Baroness Hanham

21: Schedule 1, page 23, line 20, at end insert—

“( ) This paragraph is subject to regulations under paragraph 7A.”

Amendment 21 agreed.

Amendment 22 not moved.

Amendment 23

Moved by Baroness Hanham

23: Schedule 1, page 23, line 35, at end insert—

“( ) about the making of a payment by a billing authority to the Secretary of State or vice versa where—

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(i) a calculation of a payment under paragraph 6 is made by reference to an estimate of an amount, and

(ii) it is subsequently determined that the actual amount is more or less than the estimate.”

Amendment 23 agreed.

Amendment 24

Moved by Lord Jenkin of Roding

24: Schedule 1, page 23, line 35, at end insert—

“(3) The regulations must make provision to ensure that, where—

(a) a billing authority is required to make a repayment or credit by regulations made under paragraph 2(2)(j) of Schedule 9, and

(b) the requirement is the result of a relevant alteration of the authority’s local non-domestic rating list,

the amount of the repayment or credit is credited against subsequent payments by the authority under this paragraph.

(4) A relevant alteration for the purposes of sub-paragraph (3) is an alteration made under section 55, which was—

(a) an alteration of the rateable value of a hereditament shown in the list,

(b) made on the grounds of an inaccuracy in the list arising from a change in the matter mentioned in paragraph 2(7)(e) of Schedule 6, and

(c) attributable to a general change in the level of demand for, or supply of premises of a given use or occupation within the locality of the hereditament.

(5) The regulations must make provision to ensure that, where—

(a) a billing authority is required to make a repayment or credit by regulations made under paragraph 2(2)(j) of Schedule 9,

(b) the requirement is the result of a relevant alteration of the authority’s local non-domestic rating list, and

(c) the authority has made a payment under paragraph 6(2) or 8(1) as a result of the relevant sum having been treated as forming part of the authority’s non-domestic rating income for the year,

the amount of the payment by the authority referred to in paragraph (c) is repaid to the authority or credited against subsequent payments by the authority under the same paragraph.

(6) A relevant alteration for the purposes of sub-paragraph (5) is an alteration made under section 55, which was—

(a) an alteration of the rateable value of a hereditament shown in the list, and

(b) not made by reason of a material change of circumstances which occurred on or after the day on which the list was compiled,

and the relevant sum for the purposes of sub-paragraph (5)(c) is the sum in relation to which the repayment or credit referred to in sub-paragraph (5)(a) is required to be made.”

Lord Jenkin of Roding: My Lords, the amendments in this group, of which Amendment 24 is the first, are very long. I hope that the House may bear with me while I explain what they are all about.

How to deal with errors in the valuation list and with the sometimes long-delayed impact of appeals was referred to in Committee, as was the question of how these would be dealt with in the face of the new system of local retention of business rates. I use the term “appeals” to describe all successful proposals by

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a ratepayer to reduce the rateable value shown for his property in the local rating list, and thus his liability to pay. In essence, the amendments are intended to protect against a large transfer of risk to local billing authorities. It is important to make the point that these are matters beyond the control of the local councils. That is the background to what the amendments are about.

As part of local retention, the effects of valuation appeals in a billing authority’s area would, unless there was some express provision to the contrary, directly affect the finances of the authority. Appeals are a particular concern because of their prospective and retrospective effects. They tend to take a long period to conclude and can therefore relate to circumstances which may have arisen some years previously. Therefore, the reduction in rateable value is often then backdated by several years. As a result, the authority is faced not only with a reduction in future income but with the immediate need to make backdated refunds, and consequent effects on cash flow.

It is, of course, inherent in the notion of local retention that local rating authorities will be exposed to some volatility and risk to which they would not be exposed in a system of wholly centralised distribution as we have had hitherto. But there are certain sources of risk to which it would not be fair to expose individual billing authorities, even as part of a system of local retention.

The appeals with which I am concerned are of two types. The first are appeals where the value shown in the rating list was, for whatever reason, inaccurate when the list was made. I shall refer to this category as “initial inaccuracy” appeals. The second type is where the value has become inaccurate as a result of a general movement in the local property market since the list was made. These are sometimes called “market movement” appeals.

The initial inaccuracy type of appeal is fairly straightforward and can be dealt with quite shortly. Such appeals arise in a wide variety of circumstances. The central point for the present purpose is that the compilation of local rating lists is in no way the responsibility of local billing authorities. It is conducted entirely by the Valuation Office Agency, which is, of course, an agency of central government. Therefore, local billing authorities have no control over the accuracy or otherwise of the lists. This being the case, it would seem plainly unfair if a local billing authority were to find itself out of pocket by reason of some inaccuracy for which it was not responsible. That is the basic point of principle embodied in these amendments. I make clear that the amendments in relation to initial inaccuracy, and appeals of that kind, would not enable billing authorities to gain any benefit from any inaccuracy in the rating lists. They would not have any windfall from being able to retain the local share of overpaid rates. The amendments simply seek to ensure that billing authorities are not left in a worse position than they would have been if the list had been accurate to start with.

Three elements are needed to protect them in this way. First, where the billing authorities pass on half the revenue that is collected to central government—the central share—and some of that revenue later has to be refunded to the ratepayer after a successful appeal,

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of course, in those circumstances, the Government must refund the billing authority for the share that was passed to it. Otherwise, the billing authority would be out of pocket and the Government would be left with a completely undeserved windfall.

The second element is where the billing authority has to make backdated refunds, which means the system in past years has relied on an overgenerous assessment of the authority’s financial situation. In other words, the authority’s top-up will have been too low, or its tariff too high, because the calculation of the authority’s baseline—the revenue expectation, which is taken as the starting point for the authority under the new system and which determines the level of its top-up or tariff—was influenced by an inaccurate rating list. Where the appeal succeeds, a backdated correction of the position between the ratepayer and the billing authority will always follow. Of course, it is only fair that this must be accompanied by a backdated correction in the position between the billing authority and the Government. Otherwise, the authority would be disadvantaged through an inflated calculation of its expected revenue.

Thirdly, for much the same reason, the authority’s top-up or tariff for subsequent years should be adjusted to take account of that reduced ability to raise revenue in the future. An authority’s baseline is calculated by reference to the local rating list. Where an inaccuracy is revealed, it is right that the authority’s baseline be adjusted to take this into account. Otherwise, their entitlement will continue to be calculated on an erroneous basis.

I hope that the House will agree that really that is absolutely straightforward. It may be the intention of the Government to deal with these points through regulations. Of course, I have to raise this as an amendment on the Bill, simply as a matter of procedure, but I am looking for some assurances on that.

The second type of appeal, on market movements, raises rather more complicated issues. I will briefly explain how this can give rise to appeals. It is not the basic intention behind the rating system, where alterations are meant to deal with immediate, physical changes to properties and their surroundings. The broader economic developments in the locality are meant to be taken into account only every five years, in the revaluation. However, the line between the two is blurred by reason of the general movements of the market, as a reflection of the principles of supply and demand, which is obviously manifest in the rate of occupancy of certain types of property in a given area. The interpretation of the valuation tribunal has been that pronounced changes in levels of occupancy amount to the sort of significant change that gives rise to appeals, even though the effect is, in truth, just that of a market fluctuation.

This is likely, by its very nature, to affect a large number of similar properties at any one time. Liabilities for the authorities affected can be large and immediate. The threat is particularly severe in those areas that contain high concentrations of homogenous commercial property. The City, again, is an obvious example, but I understand that there has been a striking instance in Leeds, which has a thriving commercial district at its centre. It is a risk to which all billing authorities are exposed, to one extent or another.

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It is not immediately obvious, as with initial inaccuracy, why market movements should be excluded from the scope of the risk borne by the local billing authorities. I understand that, but it could be perfectly properly argued that local property markets are a reflection of the local business environment, for which billing authorities are at least in part responsible and which they ought to have an incentive to improve. However, this is not the path the Bill takes. The system has been designed so that market movements will not form part of the incentive for local billing authorities. The scope of the incentive—and of course, conversely, the risk—has been confined to the direct consequences of changes resulting from the addition or removal of properties from the list.

This is evident from the Government’s approach to revaluations, which are the primary way in which general movements of rental values affect a billing authority’s revenue. The Government have stated that they intend to neutralise these effects in the local retention scheme by adjusting the top-up or the tariff of the authority. The rationale for that appears in the response of the Government to the consultation of the local government resource review. The reason given in paragraph 4.6 of the government response, published by my noble friend’s department last December, is that to allow the effects of revaluation to fall within the scope of the retention scheme,

“could lead to local authorities experiencing turbulence in their budgets as a result of revaluation changes which are, for the most part, out of their control. Allowing the impact of revaluations to feed through into the business rates retention scheme could result in significant changes to the income that authorities retain from business rates through no fault of their own”.

I accept that. It is obviously right. However, exactly the same principle requires that appeals founded on market movements should also be excluded from the risks faced by local billing authorities. It does not matter, for present purposes, whether the premise that such factors are largely out of the control of local authorities is right or wrong. What matters is that the principle adopted by the Government from the passage that I have just quoted, in such clear terms, should be applied consistently and fairly. If it is wrong that billing authorities should face adverse effects from local market movements through the mechanism of revaluation, it appears equally unfair that they should do so simply because it has been discovered through the mechanism of appeals.

As a further point, which should make that inconsistency particularly invidious, market movement appeals are made only, by definition, by the ratepayer. There is no mechanism to do it the other way around. It is a particularly risky downside for billing authorities—a large transfer of risk to local authorities with no commensurate prospect of reward.

In relation to this type of appeal, the amendments again have two strands. The first deals with the retrospective effect of appeals and requires the Government, in effect, to indemnify billing authorities against any refunds they are required to make as a result of backdated market movement appeals. The second addresses the prospective effect of appeals and requires that a billing authority’s top-up or tariff be

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adjusted in future to counteract the loss of revenue resulting from a market movement appeal.

In fairness to the Government, they have made some movement in response to the concerns about appeals. Initially, they seemed to take the position that the effects of appeals would simply form part and parcel of the increased volatility that would naturally face billing authorities in a system of local retention. In Grand Committee, and in the Government’s technical consultation, this position has now been modified, which is very welcome. The historical incidence of appeals will be taken into account when determining the revenue expectations of local government in England as a whole. However, in my view and that of those who are advising me, that does not go far enough to meet the concerns. The losses incurred by an individual authority will arise to a large extent from one-off circumstances that will be difficult to predict with accuracy. The effect is that billing authorities will be left facing the consequences of factors entirely outside their control. The amendments would put in place a system ex post facto to the actual losses suffered by individual authorities. That would seem to be the fairest way to proceed; that is what ought to be done.

7.30 pm

Before passing on to what I hope will be a very short explanation of each of the five amendments that I have been describing, a point about the transitional position arises under the last of my amendments, Amendment 110. Your Lordships will be aware that under the current system all rating revenues collected by billing authorities are paid to the Government. Where a billing authority has to refund some of that revenue, it deducts the amount of the refund from subsequent payments to the Government. The concern is about the case where, after the Bill has come into effect, a billing authority has to make a refund in respect of revenue collected under the previous system. Such revenue would have been passed to the Government in its entirety. It is plain, therefore, that a billing authority in that situation should be able to deduct the whole of the refunded amount from its subsequent payments to the Government. Otherwise, it would suffer a loss while the Government would retain a windfall. Again, I would welcome a response from my noble friend about the Government’s intentions on the transitional period.

Very briefly—and I am sure that the House will be relieved—I shall deal with the specific amendments. It is not easy to draft amendments when you are not actually amending the Bill, but if it is to be done by regulation, this is the only way to do it. Amendment 24 concerns the refunds which billing authorities are required to make after a successful appeal is backdated. For inaccuracy appeals, the amendment would allow the amount to be refunded by the billing authority to be reclaimed from subsequent payments by the authority to the Government.

Amendment 37 would require that top-ups and tariffs be adjusted to account for the effects of the appeals on a billing authority’s future income. Top-ups and tariffs are of course determined against an authority’s baseline, so the mechanism concerns the calculation of the baseline. Amendment 38 would require a billing

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authority’s top-up or tariff to be adjusted in a given year to compensate for inaccuracies in the top-up or tariff in past years, as revealed by original inaccuracy appeals. Amendment 40 is a short, consequential amendment which ensures that the provisions of Amendment 37 apply to local government finance reports in the same way as to the original report. I have already referred to Amendment 110. I beg to move.

Lord McKenzie of Luton: We have tabled Amendment 82 in this group, to which I will speak very briefly because it has effectively been covered in the subset of the amendments spoken to by the noble Lord, Lord Jenkin. It deals with refunds of non-domestic rates in circumstances where the rates were collected and paid over in a period prior to 1 April 2013 but where, under the new system, an authority has to reimburse a business rate payer on appeal. Our amendment states that there should be reimbursement in the first case from,

“undistributed business rates at 31st March 2013”,

and then from the central share. I take this opportunity to ask the Minister: what is the level of the undistributed business rate at 31 March 2013? A letter before Third Reading would be fine.

Amendments 24, 37, 38 and 40 are extensive and complex, and I know that they have been pursued by the City of London. I am grateful to the noble Lord, Lord Jenkin, for securing a briefing which certainly helped our understanding of what it seeks to do. As we have heard, it seeks to address what is argued to be an inequity in the current business rate retention scheme proposals arising in respect of valuation appeals. As we have heard, they form two types of appeal in particular: those arising from error from an initial valuation being too high; and those arising from market movements such as a general fall in the local property market.

The amendment proposes a three-part solution for the impact of the initial valuation appeals. For any business rates collected and passed over to or shared with the Government, there should be a refund to local authorities which have had to fully reimburse the ratepayer. Those should be very straightforward. Secondly, top-ups and tariffs should be adjusted to reflect lower incomes from the past. Thirdly, top-ups and tariffs should be adjusted for the future to reflect lower business rate income. That is the proposition, and a similar approach is suggested for market property movements.

The case for neutralising the effect of market reductions, as the Government propose for market revaluations, seems entirely reasonable. My uncertainty, without having had the opportunity to work through this in great detail, is whether the express remedies relating to the adjustments of top-ups and tariffs can work as suggested. While the legislation would allow adjustment for individual authorities for those components, the system envisages calculation of aggregate business rates and proportionate shares. Recognising changes to some local authorities would imply changes to the whole way in which the formula works. Obviously, the process of resetting would cover that, but its timing cannot be driven by the outcomes of appeals. The

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issues raised by the amendments are real, but I look forward to the Minister’s response on the particular solutions proposed.

Baroness Hanham: My Lords, I thank my noble friend Lord Jenkin for explaining his long amendments so succinctly. I hope that I can be succinct in response; I can see people looking at their watches. We have recognised the question of appeals from the outset. As early as the summer of 2011, we recognised that the rate retention scheme would have to accommodate the volatility that exists in the business rate system.

My noble friend gave us all the notes and half the answers, so some of this will be repetition. The technical paper to which he referred, published in August 2011, looked at the question of the volatility of the rating system, such as from rating appeals, and considered how it should be treated in the rate retention system.

Rather than seeking to categorise in some way all the many thousands of alterations to the waiting list made each month, we proposed a general safety net to protect authorities from large reductions in their income, whatever the reason for it. Almost 80% of the respondents to the consultation agreed with the general safety net approach, so that is what we have adopted in the Bill. Conversations with local government are still going on about the issue; they went on throughout last year. We continue to explore whether it would be possible to isolate specific types of alteration to the rating list, but we have not seen any proposals—even in the amendments tabled by my noble friend—which would adequately address the issue in a fair way while maintaining a reasonable share of risk and reward between local and central government. Noble Lords will recognise that appeals can go either way. You may end up quids in on one appeal and quids out on another, but a local balance can be struck from that.

The amendments precisely illustrate the problem as, taken together, they would pass to central government all the risk associated with most alterations to the rating list, including all alterations to the current compiled rating list. They would leave central government carrying most of the risk on business rates while allowing local government to pick up all the rewards when the rates go up. That does not strike the right balance, but our discussion with local government has not found any better formulation than we have here at the moment. That is why we are proposing in the Bill a general safety net to protect local government income from alterations to the rating lists, whatever the reasons for that change. The safety net will work on the basis of the baseline.

There was mention of transition. We recognise that when the rate retention scheme commences there will still be historic alterations to be made to the rating lists. Many of these alterations, including additions for new buildings as well as reductions from appeals, will be backdated into years prior to 2013. While this is all part of the system that we will localise from next April, we appreciate that not all alterations have been captured in the baselines when setting up that system. We have therefore promised that some allowance should be made for appeals when setting it up. To deliver on

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this promise, we will adjust the starting position for local authorities so that they have extra financial headroom for changes to the rating list, such as from appeals—and that will be in the baseline. We will set out the size of this adjustment in the draft local government finance report. The adjustment will provide extra cash for local government to manage its appeals.

I accept that the matter of volatility in the rating system is a challenge for the rate retention system. As I have said, it is a matter we have recognised from the outset. We have been and remain in discussions with local government throughout the passage of the Bill. The combination of a general safety net and an allowance for appeals in the set-up of the scheme seems to provide a reasonable solution and the right balance of risk and reward. My noble friend has laid out at great length the problems which London Councils, in particular, may still see but I hope that I have demonstrated that the Government have listened very carefully to what has been said and that there is a solution here which will be fair to just about everybody. I hope that my noble friend will be able to withdraw his amendment.

Lord McKenzie of Luton: Before the noble Baroness sits down, can she deal with the point about the undistributed rates at 31 March and what the quantum of that is?

Baroness Hanham: I apologise to the noble Lord but I think that when he asked the question he anticipated that that is actually quite detailed. It is not a figure that I have just got in my head, so perhaps I may write to him to give it.

Lord Jenkin of Roding: My Lords, my noble friend has made it very clear that these matters are going to be dealt with in regulations. There will therefore be the opportunity to consider those regulations in draft and if necessary, to negotiate. As I understand it, the City authorities have been negotiating with my noble friend’s department for some time on this. This is not a new thing, but there still has to be an opportunity to try to reach a sensible agreement. I understand the point that my noble friend has made about not loading the whole thing on to government, but that agreement has to be fair to both parties. Having heard that, however, I do not think that I should talk any longer and I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

Amendments 25 to 30

Moved by Baroness Hanham

25: Schedule 1, page 23, line 35, at end insert—

“Regulations about deductions from central share payments

7A (1) The Secretary of State may by regulations make provision for the deduction from a payment to be made under paragraph 6 by a billing authority to the Secretary of State of an amount to be determined in accordance with the regulations.

(2) The regulations may, in particular, make provision for the determination of an amount to be deducted to be made by reference to the operation in relation to the billing authority of section 47 (discretionary relief).

(3) The consent of the Treasury is required to regulations under this paragraph.”

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26: Schedule 1, page 24, line 13, leave out “the local share of”

27: Schedule 1, page 24, line 16, leave out “sub-paragraph (4)” and insert “this paragraph”

28: Schedule 1, page 24, line 26, at end insert—

“( ) The regulations may not have the effect that the total amount payable by a billing authority under the regulations for a year exceeds the billing authority’s local share of its non-domestic rating income for a year.”

29: Schedule 1, page 24, line 36, leave out “or this paragraph” and insert “, this paragraph or Part 6 (funds) so far as applying to non-domestic rates”

30: Schedule 1, page 25, line 6, at end insert—

“( ) about the making of a payment by a billing authority to a major precepting authority or vice versa where—

(i) a calculation of a payment under regulations under paragraph 8 is made by reference to an estimate of an amount, and

(ii) it is subsequently determined that the actual amount is more or less than the estimate.”

Amendments 25 to 30 agreed.

Consideration on Report adjourned until not before 8.43 pm.

Education: Conservatoires

Question for Short Debate

7.44 pm

Asked By Lord Lipsey

To ask Her Majesty’s Government whether they will meet the funding needs of the United Kingdom’s conservatoires.

Baroness Stowell of Beeston: My Lords, before we start the next debate noble Lords will obviously know that it is time-limited. This is one of those tricky ones where we have great interest in the debate, which leads to a very limited speaking time for Back-Bench contributions: two minutes, except for the noble Lord, Lord Lipsey. I will endeavour to have us working together. If everybody were to have three minutes, it would take us over the hour but at two minutes I will try not to be too draconian. I am sure noble Lords would not want me to be that. If we can all come in together at an hour at the end of it, that would be marvellous. Thank you.

Lord Lipsey: My Lords, I start by declaring two non-pecuniary interests: as chair of the all-party classical music group and, as of 1 October, as chair also of the Trinity Laban Conservatoire of Music and Dance in London. I imagine that most of the many noble Lords participating in this debate have had the experience of walking into a music conservatoire. In my new position, I have the privilege of regularly walking in to the magnificent old naval college building in Greenwich, where the Trinity music school is situated, to find a jazz saxophonist practising up there, Bach cello music coming from down there and a bit of John Cage—I do not necessarily move towards that window—coming from over there. On the same visit, I may go to the Laban dance building, which won the Stirling architecture prize. There, because it does modern dance, you see bodies of all shapes and sizes—and yes, of course, of both sexes but also of every kind of racial background

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that you can imagine—working and working to perfect their art form. Every time that I go in there, it sends a tingle down my spine.

I am tempted just to say that and sit down, which might be very welcome as the House does not like people to go on for too long. The reason that I could sit down is the number of noble Lords who have put their names down to speak in this debate, even though they know that once they have cleared their throat they will have to sit down again. This really shows that this is one of those issues which may not seem huge on the great national tapestry but are of burning importance, not just to the people who work or study in the sector but to the whole of the culture. If anything in this world is of value, it is music, dance and drama and the conservatoires that make them possible.

I should also say at the beginning that this is not a “bash the Government” debate. I can do “too many cuts” speeches off the top of my head; I have been doing them for many years. When the Government introduced their new arrangements for higher education funding, I think that the special circumstances of the conservatoires did not enter their heads. That was certainly the impression that I got from ministerial correspondence at the time. However, to be fair, the Government have since woken up to the problem. My classical music group had an excellent meeting with David Willetts, the responsible Minister, over the summer. He was very concerned to listen to us. The Higher Education Funding Council for England is also sympathetic. This is not about “damn cuts” but it is, I suppose, special pleading and I will now make that special plea.

What, in a nutshell, is the problem? It is this: conservatoire education is by its very nature expensive to provide. You need one-to-one teaching; you need lots of space for people to practise; you need decent instruments, which are a lot more expensive than the whiteboard arrangements needed at a normal university. In recognition of this, successive Governments have provided funding for the sector—most notably through the exceptional funding that HEFCE provides. This is now coming under pressure. The higher education review that the Government published envisaged much higher fees and a consequent reduction in special funding. We are not going to argue with that; our fees will go up, as have those of other undergraduate institutions. However, we do not even have a guarantee that special funding will continue beyond the end of this year. HEFCE has kept it going for a further year in 2012-13 but is reviewing it now. An announcement is expected in December 2012. My colleagues and I operate every day with the sword of Damocles still poised over our heads.

The situation is very tough. HEFCE funding has been reduced by £9.7 million in cash terms and 16.1% in real terms since 2009-10. All conservatoires have been hit by the previous Government deciding that if you had done a first degree somewhere, you could not then go and do a first degree somewhere else and be funded for it. So someone who is a chemist but turns out to be a brilliant pianist cannot now get any funding if they go off to do a degree in piano. There has been a virtual removal of capital funding for teaching, which,

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as I said, needs to be much higher—you cannot buy a Steinway for the price of a blackboard. So the general situation that we face is very tough.

We ought to have a sense of proportion about this funding gap. The total funding for exceptional funding from HEFCE is £20 million. At the Conservative Party conference this week—this is not a party political point—the Government said that they were seeking, from social security benefits alone, cuts of £10 billion. That is 500 lots of our total funding. This money is not material in terms of its impact on the deficit, on the Exchequer or on anything like that, but it is oh so material regarding what happens at our conservatoires.

It is not easy for us to find other income. For example, we are looking the whole time for more foreign students but we face a great deal of competition, including from European institutions which are subsidised by their Governments, and now we have the problems created by immigration law, which were dramatically illustrated by the London Metropolitan affair. Trinity Laban suffers because the Americans have just cut off loans that were previously paid to fund students from the Americas because we do not have degree-awarding powers yet. The Government have made it more difficult for our students to get jobs after graduation, since you have to show that you can earn £20,000-plus a year and it is not easy for a music student to do that because they have a portfolio of earnings that come from different places.

We are also trying for philanthropic support, but that is not an instant solution either. The easiest thing to raise philanthropic support for is scholarships, but that just means that you get one student paid for by philanthropy who otherwise would be a student paid for through HEFCE in the normal way of business. It is not just money that goes through to the bottom line. We work on commercial money like mad but it is not easy to make yourself a billionaire from music.

Costs are being cut to the bone. I mentioned the beautiful buildings in Greenwich but I am afraid that the paint is peeling. It is hard to escape the conclusion that a proper contribution from government is essential if the conservatoires are to survive and prosper. This was recognised in the report by Darren Henley, the boss of Classic FM—no egghead he, but a good egg nevertheless—whose cultural education review in 2012, which the Government were very keen on, said:

“The government should recognise the need for exceptional funding for culturally based conservatoires, which train the artists, actors, dancers and musicians who will create and perform the culture of the future. The funding settlements for these conservatoires should be secured for the long-term”.

That last sentence is very important. It is not easy to plan the future and institutions such as this if you do not know where next year’s money is coming from.

With cuts here, there and everywhere—£10 billion of cuts—some might question whether institutions such as the conservatoires should be a priority for public spending, but no one should doubt the contribution that they make to the economy. Trinity Laban is in the top five higher education institutions in the country in terms of its graduates going into jobs. These are motivated people who are determined to work and find a way of making a living. Conservatoires contribute

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to jobs and to foreign exchange with students from abroad, and culture today is big business. However, I defend conservatoires not simply on those grounds but on these: our resilience as a nation in the crisis that we face in our economy depends not just on material matters—it depends on the values that sustain us as a society. A land without music, every kind of music, or dance of the highest quality is a land that has lost its soul, and once it has lost its soul it will lose the rest of its way too.

7.54 pm

Lord Lexden: My Lords, after thanking the noble Lord, Lord Lipsey, for initiating this valuable debate, I shall make brief reference to Northern Ireland, which is my second home. The long tradition of fine classical music-making in the Province, the land of Sir Hamilton Harty, is insufficiently celebrated. Too much is made of the raucous thumping tones through which the divided communities have marked their differences, and too little has been heard of the way in which great music helps to bring members of both communities together, particularly young people blessed with rich talent.

Northern Ireland does not have a conservatoire of its own. There are some who would like one to be established but the reality is that its population resources are not large enough to support such an endeavour, so its promising young artists adorn the music colleges in other parts of our country. Many take pride in displaying their skills back in Northern Ireland itself, encouraging others to follow their example—none more so than Barry Douglas, a brilliant pianist born and educated in Belfast before becoming a quite outstanding student at the Royal College of Music in London, where he laid the basis for his ever-growing international career. Each year he directs the International Festival of Chamber Music held at Clandeboye in County Down.

Nowhere is there greater interest in securing the financial future of our conservatoires than in Northern Ireland. This should not be taken to imply that little or nothing is done in Northern Ireland itself to nurture young talent; on the contrary, ambitious education schemes flourish. The recently formed Northern Ireland Opera has led the way in providing access to outstanding music education. The winner of its 2012 young singer of the year award, Dawn Burns, is currently studying at the Royal Welsh College of Music and Drama. Next month she returns to Belfast to sing with the Ulster Orchestra and international opera star Barbara Bonney. This one example illustrates the broad theme that I want to underline—the crucial and often interlocking work done both in our conservatoires and in Northern Ireland itself to enhance one of the glories of our country:

“Music, the greatest good that mortals know,And all of heaven we have below”.

7.56 pm

Lord Maclennan of Rogart: My Lords, I, too, wish to congratulate and felicitate the noble Lord, Lord Lipsey, on obtaining this important debate, which I

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believe is very timely. It appears that the conservatoires have almost inadvertently been overlooked in the structure of higher education; there has been a real-terms reduction in expenditure on them since 2008-09. The importance of these bodies is beyond challenge, and the number of people applying to speak in this debate is an indication of the width of support that the conservatoires enjoy. I speak as a Scot and recognise that the cultural life of Scotland is of massive importance; there is nothing outside the Olympic Games that attracts more people to this country than the Edinburgh International Festival, and our efforts in promoting the work, talent and creativity of the individuals who are now artists known worldwide are of significant importance.

In the very short time that is available, I ask the Government to recognise that what is required is a new structure for the funding of the conservatoires that recognises their legitimately very high costs and the length of training that they require. These are not spendthrift institutions but they have expensive requirements, and that needs to be taken into account in determining our policy.

7.58 pm

Baroness McIntosh of Hudnall: My Lords, I congratulate my noble friend Lord Lipsey both on securing this debate and on his recent appointment, which I had not known about and am delighted by.

I remind the House of my own interests. I have spent all my professional life working with people who have come through conservatoire training; I have observed them, employed them and advised them and for a short while I was in charge of them as, briefly, principal of the Guildhall School of Music and Drama. Furthermore, both my children are conservatoire-trained, so I think I may say that I have seen this kind of education close up, and these are some of the things I know. First, conservatoire training is intense and rigorous, and requires tremendous dedication. For musicians in particular, the road is not only hard but long. Secondly, it is therefore expensive to deliver. Thirdly, students who secure the few available places do so in the face of fierce competition and are often highly skilled before they even start. Fourthly, conservatoire graduates are central to the continuing worldwide success of UK arts and culture, which is critical to our economy.

There is currently, as we heard from my noble friend Lord Lipsey and others, a damaging degree of confusion and uncertainty about whether the necessary special funding for conservatoires will be properly secured. I should like to quote from a letter I received recently from the principal of one of our leading conservatoires in this country. He puts it thus:

“What we have at present is a cocktail of inadequate formula funding with various stop-gap supplements plus an institution-specific supplement that is subject to review every four or five years. It’s a mess. HEFCE do a really good job of making do and mending but ... this has never been translated into the price group structure that has underpinned HEFCE funding for many years. They allocate conservatoire training to a low price group and then wonder why the fee plus teaching grant doesn’t meet the costs and needs a supplementary discretionary top-up”.

He goes on to say:

“What we need is a structure that recognises ... the legitimate high cost and length of training required”.

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Of course that is what we need. Why can we not do this when we can do it for other disciplines such as medicine, which also requires long training and high-cost teaching?

The noble Viscount, Lord Younger, is, I know, something of a performer himself. I am sure he perfectly understands these issues, and I hope that when he winds up, he can give the conservatoire sector some hope that they may be resolved.

8.02 pm

Lord Low of Dalston: My Lords, all those who experience the arts as part of their very lifeblood and that of the community in which they live must be indebted to the noble Lord, Lord Lipsey, for raising these important matters. It is a rash man who would venture into the same territory as the noble Baroness, Lady McIntosh, with her unrivalled expertise in this area, especially in two minutes, so I shall not try.

Rather, I wish to use my time to highlight some of the problems that conservatoires are experiencing with the UK Border Agency, such as the costs and delay in issuing visas, their unjustified refusal and so on. Because the UKBA cannot give a more accurate estimate of the time needed to process postal applications than four to 14 weeks, some students with late offers have been forced to pay for the premium service. In most cases, application decisions are received sooner than this, but the unpredictability means that most students will not risk overstaying on their current visas in case they receive a rejection or refusal after several weeks. Added to the sort of problems referred to by the noble Lord, Lord Lipsey, these things, together with the cost of tuition here and restrictions on post-study work, have begun to make training in this country much less attractive than it was.

London was always the number one destination for the world’s most talented music students, but the recruitment of international, and particularly non-EU, students, who have contributed so much to the high quality and worldwide reputation of UK conservatoires, as well as their financial sustainability, is now increasingly under threat. The tier 1 post-study work immigration route provided important opportunities for conservatoire graduates to gain invaluable performance experience, which is so crucial to the development of a career. The closure of this route and its proposed replacement with tier 2 graduate employment for those on a salary of over £20,000 has little application in the music and performing arts sector, where people have a portfolio career and are mainly remunerated by one-off performance fees or commissions. No wonder that a former overseas student of whom I have knowledge is saying that if she was looking to study abroad today, she would not come to the UK because the climate is too hostile. She would go to Australia instead.

There is more that I could mention, but I have necessarily had to be selective. I hope that the Minister will be able to take some of these points on board and address them in his reply, or if not at least to take them away for more mature consideration.

8.04 pm

Lord Wills: My Lords, I, too, congratulate my noble friend Lord Lipsey, and I thank him for initiating

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this important debate. As the noble Lord, Lord Maclennan, has said, the number of noble Lords who are participating indicates the importance that this House attaches to the role of these crucial institutions in our cultural life. In the couple of minutes available I want to focus, as my noble friend Lord Lipsey and the noble Lord, Lord Low, did, on the position of international students. Not only do they make an invaluable contribution with the considerable fee income that they bring in to these institutions, they are also largely responsible for an important and irreplaceable creative input, widening the diversity of excellence and musical influence, which benefits all students. It is therefore important that we should do everything possible to encourage these students to continue to come and study here.

I want to raise four particular concerns by asking the Minister four questions. First, as we have already heard, the replacement of the post-study work immigration route with a qualification through graduate employment raises particular problems. It is largely irrelevant to musicians, very few of whom go on to earn a salary. Will the Minister undertake to look at what can be done to make these provisions more appropriate for musicians? Secondly, in small institutions such as the conservatoires, with relatively few overseas students, a small number of visa refusals, sometimes for reasons way beyond the control of the conservatoires themselves, can affect their status as highly trusted sponsors. Again, will the Minister undertake to see what can be done to make these provisions more appropriate for the conservatoires?

Thirdly, the Minister will be aware, as my noble friend Lord Lipsey has already alluded, that the US federal loan board has withdrawn loans for studying at UK institutions that do not offer their own degrees, and that includes conservatoires. Can the Minister confirm that the Government are doing all they can to get the US authorities to look again at this decision and say when Ministers expect next to meet their US counterparts to discuss the issue? Finally, the Minister will accept that the decision about London Metropolitan University’s highly trusted sponsor status has created alarm among overseas students. What are the Government doing to reassure these students that they are welcome to continue to come and study here?

8.06 pm

Lord Black of Brentwood: My Lords, I declare an interest as a member of the council of the Royal College of Music, a remarkable centre of excellence that produces the same tingle down my spine that the noble Lord, Lord Lipsey, experiences. In 1882, the Prince of Wales posed our artistic forebears a question: “Why is it that England has no music recognised as national? It has able composers, but nothing indicative of the national life ... The reason is not far to seek. There is no centre of music to which English musicians may resort to derive instruction, counsel and inspiration”. The answer to his question was the foundation of the RCM which, in the years since then, has acted as just such a centre of music. It is a beacon of talent and expertise that feeds the creative life of our country and helps to shape its artistic character.

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In these days of serious challenges for public funding, it is necessary to prove the added value of such institutions. That is exactly what a recent invaluable report from the LSE on the impact of the London conservatoires on our economy did. It shows how conservatoire graduates are disproportionately represented in the highest achieving and economically active sectors of the profession, including providing half the players in London’s leading orchestras. It notes how the music sector constitutes a sizeable proportion of the creative economy, comprising 7,900 businesses—and conservatoire graduates are powering its growth.

Conservatoires are vital, but they are also expensive. As we have heard, delivering the musical curriculum means intensive and often individual mentoring and coaching as well as performance spaces that replicate professional conditions. Those significant extra costs are the reason why successive Governments have ensured that the conservatoires receive exceptional funding. The long-term maintenance of that funding is crucial, especially as our colleges face so many other business challenges, including rising costs, capital funding and long-term risks to their ability to recruit.

Our conservatoires are jewels in the UK’s artistic crown. They have trained some of our greatest composers and conductors. They bring life to our capital city and they attract musical talent from across the world. They contribute to vital research, and above all they help to support local community artistic and musical life. I know that times are hard, but hard times force us to concentrate on what is absolutely vital—and these institutions are. The support that the Government have given them is extremely welcome, and I hope that tonight there will be another clear commitment from the Minister to their future.

8.08 pm

Lord Haskel: My Lords, what I found particularly interesting about the Olympics was the interviews. Without exception, the medal winners told us that their achievements were due to the individual and continuous support that they had—one-on-one support that enabled them to achieve such high standards in their sports. As my noble friend Lord Lipsey described, this is what conservatoires do for music.

Over the years, Aldeburgh Music has developed into a place where musicians can come for that one-on-one continuous professional support and training. Jonathan Reekie and his team provide support at every stage of development, starting with young musicians, going on to supporting musicians at conservatoires, continuing to support the emerging professionals through the Britten-Pears young artist programme—which is, incidentally, the largest in the UK—and going on to master classes and residences for accomplished musicians who want to do better. Its sense of mission for continuous improvement, even for the most accomplished musicians, makes it one of our most valuable institutions for encouraging and developing talent—and, of course, Aldeburgh is a lovely place to be.

This is not special pleading for Aldeburgh. What I am pleading for is recognition that maximising human development and talent through institutions such as

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conservatoires and Aldeburgh is expensive, but it is the only plausible strategy for winning gold medals in the future for our music and for its contribution to our culture, our society, our economy and to feeling good about ourselves. That is why they should have proper financial support.

8.11 pm

Lord German:I congratulate the noble Lord, Lord Lipsey, on this timely debate. Tonight, we are celebrating the spectacular contribution that conservatoires bring to the culture of our country and to performing arts in particular. We should also be celebrating the fact that just one-quarter of 1% of the student population of this country is contributing over £2.5 billion a year to its economic life. A small contribution from the state produces a much bigger return for our country as a whole. That economic fact cannot be overlooked.

It is true that we have to use large amounts of capital funding to be able to train and work with these students. They need large performing spaces, very expensive instruments and very expensive equipment. Let us compare that with the sciences, particularly medicine and dentistry, which also require large-scale capital investment. Institutions teaching those subjects are able to get research funding that is not available to conservatoires.

The problem that we have seen in England can be contrasted with the role of the Higher Education Funding Council for Wales. I pay tribute to the noble Lord, Lord Rowe-Beddoe, because if anybody walks into the Royal Welsh College of Music and Drama now, they will be astounded. Their breath will be taken away by the facilities in that brand-new building which contributes so much to our cultural life. The Higher Education Funding Council for Wales has a new premium funding which has tried to give to medicine, dentistry and other capital-intensive higher education institutions the ability to fund on a longer-term basis. The problem for HEFC in England is that it has had many supplementary grants but not brought the patchwork quilt together. My message to the Minister is that continued funding, in a comprehensive and sustainable way, is essential.

8.13 pm

Baroness Warwick of Undercliffe: My Lords, I, too, thank the noble Lord, Lord Lipsey, for securing this very timely debate, and wish him many enjoyable and spine-tingling musical moments in his new association with Trinity Laban. It is clear from the debate that there are many of us in this House who share his concern over the impact of funding cuts and short-term funding formulas on our conservatoires. As other noble Lords have said, a conservatoire education may be expensive, like medicine or dentistry, but it is part of our cultural lifeblood. I strongly support my noble friend’s call for a long-term funding solution that recognises the legitimate high cost of conservatoire training and places it among mainstream higher education.

At this stage in the debate, it would probably be enough to say amen to all the points that have already been made, but I join our choir tonight to emphasise just two points. I was dismayed to learn that the US

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federal loan board is withdrawing loan facilities for study at UK institutions that do not offer their own degrees. It questions their legitimacy as listed bodies within the UK higher education sector. It affects a number of conservatoires, including Guildhall School of Music and Drama and Trinity Laban, whose awards are validated by City University, as well as others such as Glasgow School of Art. This has serious implications. The US is an important source of international students for our conservatoires, but these students depend heavily on getting study loans from US federal authorities. Can the Minister say whether the Government can assist in any way in convincing the US to change its position?

Secondly, the closure of post-study work visas, which enabled conservatoire graduates to gain experience as independent artists and performers before returning home, is a further blow. The proposed alternative for graduates on a salary of over £20,000 means little in the music and performing arts sector where, as the noble Lord, Lord Lipsey, and others have said, graduates have a portfolio career and are usually paid in one-off performance fees or commissions.

The education and training offered to the world’s most gifted practitioners is of necessity lengthy and expensive. So, in harmony with others in this debate, I ask the Government why these institutions continue to be subject to short-term, make-do-and-mend funding arrangements.

8.16 pm

Lord Aberdare: My Lords, I, too, thank the noble Lord, Lord Lipsey, for initiating this important debate, and I shall try to make sense of those of my notes that have not been crossed out during the course of the debate.

As we have heard, the UK’s conservatoires represent a priceless competitive advantage, not just cultural but economic, that is quite disproportionate to their relatively small scale and cost. We really must not risk losing this, especially through inadvertence. The Government should be commended for recognising the value of conservatoires and continuing to provide exceptional funding for them, as do the Welsh Government for the splendid Royal Welsh College of Music and Drama. Surely it should be possible to give the conservatoires rather more confidence in the continuing availability of this funding, at least for a period of two or three years ahead, instead of the current situation where funding may be reduced even within the current year.

Secondly, we have heard from the noble Lords, Lord Low and Lord Wills, about the danger signs that the UK could be seen as a less appealing destination for overseas students as a result of issues over student visas and the reduced freedom for students to work in the UK after completing their studies. Why can the Government not find a way to offer a special limited exception for bona fide graduates of UK conservatoires from the current constraints which effectively prevent them undertaking performance work after their formal studies and thereby benefiting fully from their conservatoire experience? As we have heard, training to become a performing artist can take at least six years, or more for opera singers. There are many

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bodies that provide support beyond the conservatoire stage. I have been involved with one of them, the National Opera Studio. These bodies, too, need their funding protected in order to reap the full return from the work of the conservatoires.

I am heartened by the Government’s commitment to continued support for conservatoires. There is clearly no direct threat to kill the goose that lays such golden eggs for the UK, but I trust the Government will also ensure that the goose does not little by little become so deprived of sustenance and of an environment in which it can thrive that it dies anyway.

8.18 pm

Lord Kennedy of Southwark: My Lords, I, too, thank my noble friend Lord Lipsey for initiating this important debate in your Lordships’ House tonight. I knew of my noble friend before I entered this House, but I did not have the privilege of meeting and getting to know him until I was a Member. We have found that we agree on a number of diverse issues, and it is always a pleasure to be in his company.

While I was at school, I learnt to play the bassoon. I can advise your Lordships’ House that I was a very average player, but I am immensely grateful to my school, the former Inner London Education Authority and the Centre for Young Musicians for the help, support and encouragement they gave me and my fellow pupils. One or two of my fellow pupils got the opportunity to study at our conservatoires, and it is vital that the Government meet the funding needs of these centres of excellence.

The United Kingdom is seen as a centre of excellence in music. We not only produce from our own citizens some of the finest musicians in the world, but some of the finest musicians in the world come here to study because of our centres of excellence. It is not measured in fee income from home or abroad but in our influence, the vibrancy of our cultural scene and that in each of the nations in the United Kingdom, world-class concerts, events and productions of a staggering variety are taking place every day which people from all parts of the United Kingdom pay to enjoy. Tourists from all around the world come here because of the reputation, quality and variety of concerts and other productions. For relatively modest sums, the payback is measured in billions of pounds, thousands of jobs and the wonderfully creative things that we all enjoy and benefit from.

So I want the noble Viscount, Lord Younger of Leckie, to be a champion for our conservatoires and to make the case for exceptional funding. We have been the shop window of the world this year, with the Olympic and Paralympic Games and the Diamond Jubilee of Her Majesty. It would be a tragedy if this was put at risk by short-term, blinkered actions by the Government that have not been thought through.

8.20 pm

Lord Rowe-Beddoe: My Lords, I thank the noble Lord, Lord Lipsey, for securing this short debate. Indeed, I thank our Library for producing such a comprehensive briefing pack. I have pleasure in declaring

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my interest as the president of the Royal Welsh College of Music and Drama, and formerly its chairman and governor. It is a full and supportive member of Conservatoires UK, and one of only a few institutions across the United Kingdom which trains across both music and theatre disciplines, from undergraduate to both masters and doctoral levels.

For our 700 students, performance forms a central element of the curriculum. Students, mentored by leading professionals, deliver some 300 performances each year. We are a factory—a factory for creativity and of creativity—with an undiluted focus on preparing our students for the professions, to graduate and to earn their living by the use of their varied talents, which some 90% achieve within a year of graduation. Yes, they earn their living indeed—in a sector which contributed greatly to the wealth of the nation, measured in both GDP percentage as well as aiding significantly our great cultural heritage. But at what price?

Of course these 7,000-odd students across the UK conservatoire system are expensive to train, for reasons well known. The return, however, on the premium funding is a most attractive investment when considered as a percentage of our GDP, as well as of our UK exports, referred to by the noble Lord, Lord German. The LSE report referred to by the noble Lord, Lord Black, considered just three London conservatoires and amply illustrates the economic benefits. However, the £9,000 current premium funding for students allocated by the Welsh funding council cannot be a year-to-year decision. Governments in England, Wales and Scotland must ensure continuity. Otherwise, future planning is in jeopardy.

8.22 pm

Lord Grocott: My Lords, what a pleasure—maybe an unusual pleasure—to find yourself towards the end of a debate with many contributors and being able to say that you agree absolutely with everything that has been said. I offer special thanks, of course, to my noble friend for introducing it. I declare a non-financial interest as a member of the governing body of Birmingham City University, of which Birmingham Conservatoire is a constituent part, and one of which the university and students are enormously proud. The city is proud also, which is very important indeed. The university and the conservatoire are very closely rooted in the city and are proud of the region in which we all operate.

I have three points: one economic, one social and one geographic, all specific to Birmingham. The economic point is that for historic reasons, which I certainly do not have the time or interest to go into, we are rather different from most other institutions in that we are not a stand-alone institution as a conservatoire, and therefore do not receive in the same way exceptional funding recognising the special costs associated with conservatoires. Partly as a result of that, we are—I can say without blushing—one of the best in terms of value for money. Certainly, our income per capita for a full-time student is less than half that of many of the other institutions. That is not to make any comments about any of the others; it is simply saying that we are very good value for money.

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The second point is social, and one I am proud to make. The conservatoire in Birmingham, like Birmingham City University, takes a disproportionate number of its students from disadvantaged or low-income backgrounds. The figure for those in receipt of bursaries is 49%, against the average for conservatoires of 35%. Anyone who has ever taught knows perfectly well the joy of seeing people develop and realise their potential. That is particularly so when you are involved with students who perhaps never thought that they would have the opportunity. It would be tragic if that statistic was ever difficult to maintain.

The third point is a simple, geographic one. If you were looking for another conservatoire, if there were none in Birmingham, you would have to go north as far as Manchester, or perhaps not quite as far; you would have to go south as far as London; you would have to go south-west to Cardiff; and if you went east, you would simply get to the sea. In the whole of the Midlands, there would be no conservatoire if the Birmingham Conservatoire was not there. We need the funding, and I appeal to the Minister to recognise our rather different position, as he has recognised everyone else’s.

8.25 pm

Lord Geddes: My Lords, I declare an interest as honorary life president of Trinity College London, the international examination board and an affiliate of Trinity Laban Conservatoire of Music and Dance, for which I was for some years deputy chairman. I congratulate the noble Lord, Lord Lipsey, on his accession to the chairmanship.

I, too, will highlight the particular contribution of international students to our thriving conservatoire sector. On graduating from our conservatoires, they return to prominent positions in their home countries as powerful advocates for British cultural and democratic values. They go on to form alliances with UK arts and educational organisations that bring substantial artistic, economic and diplomatic benefits.

We should note the significant financial investment of overseas students in our economy and higher education sector, approaching £11 million per year in direct fee payments to their conservatoires, equating to 11% of the total annual conservatoire income. Those funds are critical in maintaining the outstanding facilities and teaching provision on offer to all our conservatoire students, UK and international alike.

The noble Lords, Lord Low of Dalston and Lord Wills, have already outlined the problems of the replacement of the Tier 1 immigration route with Tier 2, so I will not go through that again, but it is an important issue. It is essential that the UK Border Agency applies its regulations for renewing highly trusted sponsor status with sensitivity to the characteristics of small and specialist institutions. Conservatoire study in the UK requires major financial and personal investment from international students and years of preparation to reach the standard for entry. Virtually 100% of students go on to complete their courses successfully. There is no plausible risk here of illegal immigration. A proportionate regulatory regime must be followed that does not

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damage our world-class institutions, nor send a message that ambitious and gifted students are unwelcome.

8.28 pm

Baroness Jones of Whitchurch: My Lords, I thank my noble friend Lord Lipsey for initiating this debate which, quite rightly, has attracted a great deal of interest and informed debate from around the Chamber.

In the short time that I have available I should like to highlight three quick points. First, I do not doubt that, in principle, the Government are committed to the future funding of the conservatoires. However, the Government have to be judged not by what they say, but by what they do. As we have heard, the reality is that grants are being cut; there is insufficient recognition of the extra costs in providing one-to-one tuition and specialist facilities; and the Higher Education Funding Council rules for accessing the additional funds are overly complex. As we have heard, the funding is under review anyway.

Secondly, the Government have mismanaged the increase in student tuition fees. It was predicted that very few universities would charge the maximum £9,000 per annum fee but this figure has become the norm and, unsurprisingly, in order to cover their costs, all the major conservatoires have been forced to charge this maximum fee. As we have heard, the impact of the tightened rules for overseas students has also taken its toll. The result is that applications for places are down by as much as 14% and the conservatoires find themselves drawing on a more limited, perhaps more socially elite, talent pool. This undoubtedly will be compounded by Michael Gove’s refusal to include creative subjects in the EBacc as part of his curriculum review.

Thirdly, the Government have consistently undervalued the contribution that creative industries make to the UK economy. For example, the UK currently has the largest and fastest-growing creative sector in the EU. The conservatoires play an important part in this, thereby contributing to our economic recovery.

In conclusion, I say to the Minister that the issues raised this evening are a microcosm of a bigger concern about what will drive our economic recovery. We believe that the creative sector, based on our global reputation, has a crucial role to play. I hope that when he replies he will be able to reassure this House of the practical support and investment in conservatoires necessary to demonstrate that the Government share this vision.

8.30 pm

Viscount Younger of Leckie: My Lords, I am grateful to the noble Lord, Lord Lipsey, for this opportunity to set out the Government’s position on the funding of conservatoires—or “conservatories” as I noticed was displayed on the screen today. First, let me put on record my wholehearted support for the excellence of our conservatoires. They are a crucial part of our national cultural heritage and in this year which has seen the Olympics, Paralympics and the Queen’s Jubilee we have seen how these events have drawn on the talents of our creative sector and the amazing skills

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and determination cultivated by our conservatoires. Who can forget the sight of the Royal College of Music chamber choir singing in the rain at the Jubilee pageant?

The Olympics saw conservatoire alumni at their best. The contributions of stars such as Dame Evelyn Glennie, Annie Lennox and Kenneth Branagh showcased Britain and British talent around the world. The Paralympics witnessed the inspirational David Toole, the dancing star of the closing ceremony, and Errollyn Wallen, a teacher from Trinity Laban, whose work contributed to the amazing spectacle. Noble Lords have alluded to their own areas and I have taken note of the contribution from my noble friend Lord Lexden, who rightly highlighted the position as regards a Northern Ireland conservatoire, and the noble Lord, Lord Grocott, who focused on Birmingham. I also noted the reference to Aldeburgh and Britten, where I have been myself, as noted by the noble Lord, Lord Haskel. The contributions from that beautiful part of the country are clearly invaluable and well renowned.

My own commitment to our conservatoires and the arts is sincere, although my participation in the Parliament choir, along with the noble Baroness, Lady McIntosh, may not be of a sufficient standard to meet the entry requirements for some of these highly prestigious institutions, where there is often only one place for every three or four applicants.

As has been clearly articulated this evening, notably by the noble Lords, Lord Lipsey and Lord Aberdare, and my noble friend Lord Maclennan of Rogart, our conservatoires are a significant national asset and their impact is felt beyond these shores. They, including Trinity Laban, are worth more than £130 million to our economy and are a force for good. I recognise that there are concerns for conservatoires, as there are within the broader higher education sector, to do with the impact of the Government’s higher education funding reforms.

However, I welcome this chance, if not to resolve all funding concerns, at least to place them in context. That context is, of course, the tough decisions that have been forced upon us by the global downturn. We have had to reform our higher education finance system and to rebalance funding between the state and the student while ensuring that those from lower-income backgrounds have no barriers to access.

This month, the first cohort of students will arrive at English universities under the new tuition fees regime. While UCAS reports an overall drop in entrants this year, some of which is due to a demographic dip in the number of 18 year-olds—I take note of the views expressed by the noble Baroness, Lady Jones—there are of course still very many more applications than places both at our conservatoires and across higher education. Competition remains fierce.

I know the noble Lord, Lord Lipsey, recently met the Universities Minister to discuss the position of Trinity Laban. They had a productive discussion in which the Minister was able to provide some assurances that the unique challenges faced by conservatoires will continue to be reflected by the funding council. Despite all the controversy, the financing changes that we have introduced are in the best interests of universities,

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students and the nation in the long term. They will provide a sustainable funding system for institutions, underpinned by a solid student support system.

Public funding will continue to flow to our conservatoires through the government-backed tuition fee loans for students and the continued central funding to support the extra costs of running high-cost specialist institutions, such as conservatoires. In addition, support for strategically important and vulnerable subjects will remain. The funding council and research councils will continue to support the conservatoire network.

I have certainly noted the comments made by the noble Lord, Lord Lipsey, on funding. In England, Higher Education Funding Council funding alone for conservatoires will amount to more than £40 million in 2012-13, which includes support for teaching, research and widening participation. My noble friend Lord German has highlighted the importance of consistency and I hope that he finds this information helpful.

Perhaps to the surprise of many of your Lordships today, the latest assessment of the financial health of English higher education institutions showed the sector reporting strong surpluses, large cash balances and healthy reserves. It is a sector financially well prepared for the new funding system. The study showed the majority of the key financial indicators as the best on record. This will help institutions to manage the challenges arising from the transition to a new funding regime where the coalition has been able to cut public spending without reducing the overall funds reaching our universities. The withdrawal of the block grant will bring a healthy market to the sector and student choice will drive up quality as institutions strive to attract students. Overall, the total public investment in the English higher education sector remains significant—some £14 billion this year.

If we focus for a moment on capital projects, we have to manage our financial resources prudently. However, this evening, I am delighted to announce that the Chancellor was able to say that there will be an additional £200 million for the Research Partnership Investment Fund for supporting long-term university capital projects. This fund, launched in the 2012 Budget with a government investment of £100 million, will support universities to develop infrastructure projects if they can match the funding by at least double from private companies or charities. That might partly answer the concerns of the noble Lord, Lord Lipsey, as regards the peeling paint at Greenwich.

I now turn to the importance of philanthropy. I understand that it is a challenge in these financially strapped times for every institution to diversify its income streams. Conservatoires already do well in this and do not rely solely on central government funding. Indeed, for some, their public funding is a minority income stream. But although our universities have made progress in recent years and funds raised by voluntary giving in the UK in the past five years have increased from £513 million to £693 million, I am sure all institutions will find there is more that they want to do to generate an increase in philanthropic giving. All will want to develop strategies to stimulate donations

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in order to position their institution as an attractive proposition to enable them to draw in funding to support their goals.

This Government salute our philanthropists and we think the work that they do is incredibly important. We want to do everything we can to recognise it. I know that many of our conservatoires have been highly successful in attracting donations and endowments. Just last month the Royal College of Art opened the Dyson building, which was built with a £5 million donation from the James Dyson Foundation.

Of course, elsewhere the arts are well supported. Taking account of lottery as well as government funding, the Arts Council will receive some £2.3 billion over the next four years.

I move on to the question of US loans for students, highlighted by the noble Lord, Lord Wills, and the noble Baroness, Lady Warwick. I understand that there have been changes to the terms of United States federal loans for US students who are studying abroad. The new requirement is that foreign institutions must have their own degree-awarding powers, in their eyes, in order for their US students to be eligible for US federal aid overseas. That affects some, though not all, of our conservatoires—I believe Glasgow was mentioned this evening. My honourable friend the Minister for Universities is continuing to pursue this matter with Martha Kanter, under-secretary at the US Department of Education, to explain the problem posed for these distinctive institutions. A further discussion is due to be held next week, but of course this is a decision taken by our American cousins and not something for which Her Majesty’s Government can take responsibility. I urge all noble Lords with any contacts to use their influence in the United States to press this case.

Many comments have been made, mainly by the noble Lords, Lord Low and Lord Wills, as well as my noble friend Lord Geddes, about international students and post-study. I will need to get back to noble Lords on those because time is running on.

This has been a stimulating debate and I welcome this opportunity to hear from the many noble Lords whose experience with conservatoires and universities is richer than my own, but I want to conclude by assuring your Lordships that our higher education sector is in good health, and that our conservatoires are recognised as beacons of excellence nationally and internationally. It is an unfortunate truth that it is never possible in a publicly funded system that every funding need for every priority can be met. Government must balance its priorities. We are entering a new age of uncertainty, with the bulk of funding following student choice, but I hope your Lordships will appreciate the significant steps that have been taken by the funding council, and by the Government, to recognise the unique nature of the conservatoires, to fund them appropriately, and to support their valuable contribution to our nation’s cultural health, well-being and heritage.

On international students and post-study, the unique contribution made by international students cannot be overstated. While the Government are clear that they cannot tolerate abuse of the visa system, make no mistake that they are committed to continuing to welcome bright, creative people to our institutions.

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London Metropolitan was unfortunate, but our top priority has been to support legitimate students to continue their studies. Replacing the post-study work route was essential, but those in creative occupations can still apply through Tier 5 by applying from overseas. Twelve months’ leave can be granted and extended to two years without a salary threshold. On that note I will finish.