Newcastle upon Tyne City Council
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I am grateful to have this opportunity to discuss what may well be one of the most urgent and pressing issues affecting my city: the budgetary black hole currently faced by Newcastle city council as a result of the reductions in funding received from central Government, alongside ever increasing cost pressures faced by the authority. I am particularly pleased to be joined by my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown), who is keen to contribute to the debate.
Before turning to the effects of the reduction in funding for Newcastle city council, I want briefly to analyse the frankly dire financial position in which the council finds itself. To make up for the significant shortfall in funding that it faces, the local authority anticipates, following analysis by the city treasurer of figures published by Ministers just before Christmas, a shortfall of £100 million over the next three years. So about £39.3 million of the funding black hole is a direct result of reductions in central Government grant funding.
The remainder of the funding gap results from unavoidable cost pressures that the council has to absorb. They include rising costs caused by inflation—of goods and services, heating and electricity—and an ageing population that means that an increasing number of people require support to live independently in the later years. Worryingly, an increasing number of vulnerable children are also being taken into care.
The economic downturn is also having a big impact on the level of income that the council is able to raise from the goods and services that it provides, such as retail lettings and car parking. There is simply less money going round. The council could, of course, have looked to increase council tax to reduce its funding gap, but has decided that that would be the wrong decision at what remains an incredibly difficult economic time for household budgets. I support its decision, for which the Government have made some resources available.
In light of the severity of the situation, the council took the decision to publish a medium-term, three-year indicative budget, believing that an open and honest approach is the best way to ensure that core local services remain affordable and sustainable into the future. However, that three-year budget and the ongoing public consultation on the proposals that it contains have caused significant concern in Newcastle and beyond, as the council has been forced to make difficult, if not impossible, decisions about the services and activities it can simply no longer afford to fund.
Perhaps the most vocal has been the campaign against the council’s proposal to cut, in phases, 100% of its funding to certain local arts organisations, many of which are of national significance. Leading well known Geordies, including Sting, Jimmy Nail, Mark Knopfler and Lee Hall, have publicly castigated the council for the proposal, which would impact heavily on treasured assets such as the Theatre Royal, Northern Stage, Dance City, Live Theatre, the Tyneside cinema and Seven Stories, recently renamed the National Centre for Children’s Books. A campaign is also under way to protect Newcastle city hall—our 85-year-old music venue whose long-term future I genuinely hope can be secured. The council further proposes a 50% cut in funding to Tyne and Wear museums, which will mean a significant reduction for the Discovery museum, the Laing art gallery and the Great North museum.
Nobody needs to persuade me of the importance of any of those institutions to our city. Indeed, they have all played a central role in the remarkable culture-led regeneration that has taken place on Tyneside over the past decade or so under the Labour Government, and many of them mean that creative opportunities and experiences are available to people of all ages in Newcastle that simply did not exist when I was a child. A recent economic impact assessment for NewcastleGateshead Cultural Venues found that for every £1 of public money invested in cultural venues there was a return on investment of £4. These organisations directly employ about 1,000 people and support the local economy, procuring at least two thirds of their goods and services from north-east suppliers.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
I am keen to work with the hon. Lady on trying to persuade the Government that, as with previous Governments, the funding formula is not satisfactory, but she must recognise that other authorities such as Labour Gateshead and Liberal Democrat Northumberland have not slashed 100% of their arts budget or closed their swimming pool.
Catherine McKinnell
I am pleased by the right hon. Gentleman’s support. I will go on to address the issue that he raises, because it is a matter of perception that needs to be properly understood.
By significantly improving the quality of people’s lives, these organisations make Newcastle a place in which people want to live, study, work, do business and invest. That is why I am angry about the invidious position in which Newcastle city council now finds itself in being forced to choose between services that make Newcastle the fun, vibrant, economically viable city it is, and services such as protecting the most vulnerable children in our community.
A further vociferous campaign by well known authors has been launched against the council’s proposal to close 10 of its 18 libraries across the city, which for my constituency will mean the branch in Dinnington closing in June this year and those in Newbiggin Hall and Fawdon closing in March 2015. As a mother of two young children, I am all too well aware of the vital role played by local libraries in our communities, whether in encouraging a love of reading, providing a place to study, or offering toy-lending services or access to IT facilities. I am dismayed that the council’s financial situation is so dire that it is closing what, to me, represents part of the great Victorian ideal of municipal service provision—facilities that, once closed, will probably be lost for ever.
Equally saddening are proposals to close City pool by 2016, and in my constituency to reduce funding for Newburn leisure centre while seeking alternative arrangements to manage Outer West pool and Gosforth pool. This scenario is frankly devastating coming just after what must have been Britain’s most successful ever sporting year and a London Olympics that was intended to “inspire a generation”.
Then there are the proposals to cut funding for play and youth services, while a £5 million reduction in funding will, by 2015-16, see the end of Sure Start centre provision in Brunswick, Fawdon, Denton and Westerhope, Lemington, Newbiggin Hall and Newburn—and that is just in my constituency. The importance of Sure Start services in supporting young children and families is absolutely invaluable, and I have serious concerns about the sheer number of places in my constituency that will no longer be able to access such facilities, which have become embedded in local communities.
Possibly of greatest significance in impact on individual lives is the proposed closure of Cheviot View, which opened only in 2008 in Newbiggin Hall to provide overnight residential short-break care for children and young people with disabilities. Many families are extremely concerned about the potential effect on their quality of life if the closure of Cheviot View is to go ahead.
Those are just some of the ways in which cuts to Newcastle city council’s budget will impact on local residents and organisations. Of course, the council is not just reducing front-line services; it is also cutting 1,300 of its remaining 8,000 staff over the next three years. I expect that the Minister will want to characterise these people as “pen-pushers” doing “non-jobs”, but let me assure him that they are not. They are dinner ladies, refuse collectors, people working in children’s services—real people with real lives and real families to support, now looking for work elsewhere at a time when opportunities are pretty scarce.
Steve Rotheram (Liverpool, Walton) (Lab)
Is my hon. Friend aware of the misleading statement by the Prime Minister last week, and does she think that it is mere coincidence that the areas hardest hit are those with the greatest need?
Madam Deputy Speaker (Dawn Primarolo)
Order. I need the hon. Gentleman to rephrase what he thought about the Prime Minister’s statement. He cannot make that accusation. He can say another word rather than “misleading”, and I would like him to do it now.
Steve Rotheram
The Prime Minister has already admitted that the statistics he gave only last week were misleading. He said that he was poorly briefed, but the statistics were misleading.
Catherine McKinnell
I thank my hon. Friend for his intervention and clarification. I will go on to address some of the misleading information that has been circulating and the concern that it has caused.
What has the Government’s response been to the situation in which Newcastle and other local authorities throughout the country now find themselves? Sadly, it seems to be one of complete disdain. I, like many others, am extremely concerned about the way in which the Secretary of State has attempted to dismiss and downplay the very real concerns about the impact of his funding decisions.
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
Does my hon. Friend agree that the Government’s withdrawal of funding is undermining local communities in Liverpool as well as Newcastle?
Catherine McKinnell
It is obviously for my hon. Friend to speak on behalf of the people of Liverpool, but I have no doubt that the cuts are impacting on all of the core cities and I will make the economic point about that later in my speech.
Baroness Eaton, who was until recently the Conservative chair of the Local Government Association, described the Secretary of State’s understanding of the effect of local government cuts as
“detached from the reality councils are dealing with”.
I could not agree more. Meanwhile, Sir Merrick Cockell has called the cuts “unsustainable” and the Tory leader of Kent says that his county “can’t cope” with further reductions and is “running on empty”.
When deliberating on what I would raise in this debate —unfortunately time is short and it has been difficult to cut down my speech—I decided to think about what the Minister would say in response. That is fairly predictable, so I will use this opportunity to respond now to what I believe he will say.
I am sure that the Minister will claim, like the Secretary of State before him, that the average reduction in council spending power across the country has been only 1.7% and, indeed, that Newcastle has fared pretty well, because its spending power has fallen by only 1.5% in cash terms as a result of the recent funding settlement. I say to him that that is disingenuous at best and seriously misleading at worst.
The headline figure, which applies to only the first year of the settlement—2013-14—has in fact already been shown to be inaccurate and substantially understated, with the Department for Communities and Local Government double-counting the council tax support grant and council tax income for both 2012-13 and 2013-14. Other errors include the cut in the early intervention grant being significantly understated. Newcastle city council believes a more realistic estimate of the cut to be 3.2%, which is more than double the published figure, or a 4.9% cut in grant funding. I therefore ask the Minister to make a commitment this evening to ensure that statements made about the level of spending power cuts are formally corrected.
The 1.7% headline figure also completely masks the far greater cuts that will take place in year 2 of the settlement. Newcastle faces a 6.8% drop in spending power by 2014-15, compared with a 5.5% average fall in England and only 1.6% in Surrey.
The Minister will no doubt try to persuade me that the cuts being experienced by Newcastle are fair and not disproportionate when compared with other parts of the country, but the facts show clearly that over the next three years the cuts will be much higher in northern areas and a few inner-London boroughs. According to DCLG’s own figures, the cut in Newcastle’s spending power between 2012-13 and 2014-15 will be £218 per person, compared with a national average of £134 and a cut of only £27 per head in Wokingham.
I refer to Wokingham because, in returning to my predictions, I assume that the Minister intends to make the time-honoured comparison between Newcastle’s situation and that of the Berkshire town. He will inform us that Newcastle still has a spending power per household that is more than £700 greater than that in Wokingham. Nobody doubts that that is the case and let me be clear: I have nothing against Wokingham. I use that example because it is the one that Ministers always bring up whenever challenged on their approach to spending cuts.
I thought it might be helpful to clarify for the Minister precisely why Newcastle receives a higher grant than Wokingham—it is because our needs are higher. Newcastle has four times more children in care, greater homelessness needs, higher council tax support needs and fewer people who are able to self-fund their own elderly care. Compared with Wokingham, Newcastle receives four times as much funding for the statutory concessionary fares scheme, yet it faces costs that are nine times higher due to the sheer number of poorer pensioners who use bus services.
Mr Graham Stuart (Beverley and Holderness) (Con)
Will the hon. Lady give way?
Catherine McKinnell
I am sorry, but I do not have much time to complete my speech.
Where local government finance becomes completely inexplicable is in the fact that Wokingham receives £124 more funding per household than Newcastle for “damping”, or protection against excessive loss of grant. Wokingham will receive an increase next year in resources to protect against excessive grant cuts that is three times greater than that in Newcastle. A system that was originally intended to protect councils from high levels of grant reductions is instead providing more protection to some of the wealthiest councils which have faced the smallest cuts in their spending power.
I suspect that the Minister will also mention the £16 billion in reserves, on which the Secretary of State believes councils are blithely sitting. However, he knows that the £16 billion figure across the country includes £12 billion of reserves that are earmarked for specific purposes, such as funding capital investment commitments in future years, meeting insurance claims, meeting equal pay or redundancy costs, and meeting the cost of flood damage that cannot be claimed under the Bellwin scheme. The latter point is of particular relevance to Newcastle, given the devastating flooding in parts of the city last year.
Indeed, reserves were referred to in the Secretary of State’s somewhat patronising document on 50 “sensible savings” that was published last month. I point out to the Minister that Newcastle city council has already made efficiencies of £100 million over the past three years and has undertaken almost all of the Department’s savings proposals.
In conclusion, Newcastle city council believes that it is in an impossibly difficult situation. Newcastle and other members of the Core Cities Group are having to write to the Secretary of State to inform him that
“there will be no money for anything but social care and refuse collection later in this decade”
unless the current funding plans are changed. The Secretary of State and his Ministers appear complacent, dismissive and even indifferent to the concerns that are being raised.
All I am asking is that they treat Newcastle city council and my constituents with the respect that they deserve and act urgently on their concerns.
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)
I congratulate my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) on securing this important debate for the people of the city that we both have the honour and privilege to represent.
It is an unfortunate fact that the map of the cuts distribution and the political map of England are almost identical. The average cut per head for Labour councils is £107, while for Tory and Liberal Democrat councils the average cut is just £36 and £38 respectively. Of the councils with a cut of more than £100 a head, 86% are Labour controlled and only 5.4% are Tory run. As a matter of urgency, the Government should review the way in which the funding formula distributes the cuts burden across different local authorities. I support the call made today by the leader of Newcastle city council, Nick Forbes, to establish an independent body to determine objectively council funding arrangements.
Other issues are specific to Newcastle. In 2009, Newcastle was in the top seven of the 36 metropolitan councils in England for indebtedness. In 2004, when the Liberal Democrats gained control of Newcastle city council, the municipal debt was £431 million. By 2010-11, under the Liberal Democrat administration, that had risen to £962 million. The cost of servicing that debt is more than £40 million a year. That comes straight out of the local authority’s budget. It cannot be adjusted downwards, and if interest rates rise, it will go in the opposite direction.
Newcastle has to meet the costs of cared-for people, out of all proportion to its tax base. There are currently 522 children in care in Newcastle. That translates to 100 children in care per 10,000 children, compared with the England average of 59 per 10,000 children. The situation is the same with the elderly. In 2011-12, the council helped to support nearly 10,000 adults with substantial or critical care needs and more than 17,000 people with lower care needs. In Newcastle, 63 adults per 10,000 are receiving permanent or temporary residential or nursing care. The England average is 39 per 10,000 adults. Pressure on those services is mounting rather than declining, yet the existing position is not even inflation-proofed.
In 2003, the town of Gateshead and the city of Newcastle bid together for capital of culture designation and made a very credible case. The current Government’s policies have forced the council to consult on ending the culture budget, which totals some £1.6 million a year. That is so far removed from anything that Newcastle citizens would want, and from any rational, economic development-based view of the role of the arts in creating employment in a regional centre such as Newcastle, that it serves as an exemplar of how far the council has been forced into considering unpalatable decisions. The situation is all the more ironic because under the Liberal Democrat administration, the council scandalously spent millions of pounds on the mismanaged Waygood art gallery project, which totalled many times more than the council’s annual cultural budget today.
Even essential services such as Sure Start cannot avoid a reduction. The council has taken steps to try to reduce the cost burden on that important service in the short term, but with the added cuts announced by the Government it looks likely that larger reductions will be needed. That flies in the face of the Prime Minister’s pre-election pledge to protect Sure Start.
We cannot even get help from the Government on relatively small things. Months ago, on 4 July 2012, I raised the issue of estate agents’ “To Let” signs. The Government promised to help, yet so far nothing has been forthcoming.
Overshadowing all that is the employment situation in the north-east. More than 3,200 people are unemployed in Newcastle upon Tyne East, nearly 1,000 of whom have been unemployed for more than a year. There are 10 jobseeker’s allowance claimants for every advertised vacancy at the jobcentre, and unemployment is heavily concentrated in the former shipbuilding riverside communities, with an unemployment rate of 14% in Byker and more than 18% in Walker, compared with an average rate of 9.5% for the north-east as a whole and 7.8% for England.
The council’s contribution to the economic development of the east end and the riverside is significant and underpins what is easily the best prospect for building the employment base of the east end of Newcastle. Logically, that should be in the Government’s best interests as well, and they should offer a helping hand.
The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)
I first join the right hon. Member for Newcastle upon Tyne East (Mr Brown) in congratulating the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) on securing the debate and giving us the opportunity to go through some of the principles behind the Government’s work on the local government finance settlement. As the hon. Lady will know, there is currently a consultation process. This week—I think on Thursday—I will be meeting representatives from the councils of Newcastle to go through specific issues, and I will take on board their comments.
The proposals that my right hon. Friend the Secretary of State set out on 19 December are out for consultation. I want to be clear that we believe that it is vital that councils continue to play their part in tackling the inherited budget deficit by making sensible savings and delivering value for money for the taxpayer. The settlement recognises the responsibility of local government to find sensible savings and make better use of its resources, and it marks a new type of settlement for local government based on self-determination and financial independence. It is a move from the begging bowl to pride in locality, and it is the start of the biggest shake-up of local government finance in a generation.
As the Secretary of State said, we are shifting power from Whitehall directly to the town hall, and we are providing a direct financial incentive for councils to promote growth and jobs in their area. From April, authorities will directly retain nearly £11 billion of business rates instead of returning it to the Treasury, and they will be able to keep the growth on that share of business rates. Striving councils will benefit by doing the right thing by their communities. If they bring in jobs and businesses, they will be rewarded. That could be particularly opportune in the context of the hon. Lady’s comments about the investment in culture that she feels the council should maintain. I will come back to that in a moment, but I hope she wins that debate with the council.
Research suggests that allowing councils to keep a share of the business rates could generate an additional £10 billion for the national economy by 2020. Our reforms will enable about 70% of local authority income to be raised locally, compared with a little more than half under the current formula grant system. That is a giant step forward for localism.
The start-up funding assessment, which gives each council a share of the funding, will mean £26 billion being shared between councils across the country, with the smallest reductions being for the councils that are most reliant on Government funding. Recent analysis by the House of Commons Library states:
“For each of the expenditure/funding measures the more deprived areas generally receive higher per capita allocations than less deprived areas”
and percentage reductions are
“generally smaller for the most deprived and larger for the less deprived areas.”
It goes on to say that:
“The group of authorities more dependent on formula grant to finance their budget—generally the more deprived areas—is set the highest floor level, representing the smallest reduction.”
We have worked closely with local government in developing the rates retention scheme and listened to what councils have told us during the extensive consultation process last year. For example, we have reduced the amounts we are setting aside for the new homes bonus and academies funding, which in total means an additional £1.9 billion for local authorities up front in 2013-14.
We have put in place a safety-net arrangement to provide protection for councils that might be affected by the closure of a large local employer. We have set the safety net at the most generous level in the range consulted on, meaning that councils will be guaranteed 92.5% of their original baseline funding under the scheme. Local authorities told us that they wanted a stronger growth incentive and we were happy to respond. We have made the scheme more generous, ensuring that at least 25p in every pound of business rate growth will be retained locally. The settlement leaves councils with considerable spending power.
Mr Graham Stuart
We have heard an impassioned case on behalf of Newcastle but the settlement inherited from the previous Government was not only a toxic debt but a situation in which funding for local government is 50% higher in urban than rural areas, despite the fact that delivering so many services in rural areas is more expensive. The real injustice is the historic underfunding of rural areas and the danger that that could be held in place all the way to 2020. It is not so much about Newcastle, although the challenges are everywhere, but we are seeing real injustice in rural areas.
Brandon Lewis
I have already met a number of councils that have made that case about rural areas. The detrimental impact of damping on some of those areas has been made clear to us in the consultation so far and we are very aware of the issue. My hon. Friend makes a strong point with great passion.
A small number of authorities will require larger savings to be made, but our proposals indicate that no council will face a loss of more than 8.8% in its spending power thanks to a new efficiency support grant. I will declare an interest and return in a moment to the figures mentioned by the hon. Lady because authorities such as mine in Great Yarmouth are suffering thanks to the problems inherited from the previous Labour Government’s funding structure. As the name implies, councils must improve services to qualify for the efficiency support grant. It is unfair to expect, as currently happens, the rest of local government to subsidise other councils’ failure to embrace modernity or move forward to a more efficient delivery of services. The settlement is not about what councils can take but about helping them take the most from what they can make.
Predictably, the doom mongers have been consulting their Mayan calendars and issuing dire warnings about the end of the world as we know it and a billion pound black hole in local budgets. Concerns that the poorest councils or those in the north will suffer disproportionately are well wide of the mark, as made clear in the report by the House of Commons that I cited a moment ago. In fact, the spending power for places in the north compares well—in fact, favourably—with those in the south.
Catherine McKinnell
As I said, it is concerning that the Minister and the Secretary of State are referring to just the first year of the budget settlement, rather than the full spending period. The way that core urban city Labour council areas compare with other places—I gave the example of Surrey and Wokingham—is quite significant over the full spending period.
Brandon Lewis
I think that Members from Surrey would make the opposite argument in terms of the effect that damping has on their areas, but if the hon. Lady will bear with me, I will move on and try to answer some of the points raised. I have no doubt that some of these issues will be raised in a meeting with Newcastle councils on Thursday. She predicted, quite rightly, that I would mention some of the numbers involved, and I do not want to disappoint her.
As the hon. Lady will know, Newcastle has expected spending power per household of £2,522. She is right that that is almost £700 more than we proposed for Wokingham, but let us not single out Wokingham. I could reel off a list of councils that would love £2,500 spending power per household. My council in Great Yarmouth, which has two of the most deprived wards in the country, is on about £500 less per household. Such deprived areas get far less than areas such as Newcastle, so it is not right to pick out Wokingham.
I could run off a list of councils, but Madam Deputy Speaker would not thank me for listing the majority of councils, which get far less than Newcastle. The figure quoted at the moment compares well with Newcastle’s per household figure for last year, but as the hon. Lady has said, we are still in the consultation process. We expect that Newcastle could do better than the national average next year in terms of overall spending power, and for Liverpool, its co-signatory, to be at the average.
We have maintained the system of damping, which I have mentioned. Some authorities have concerns with damping, but the Government have set a floor below which council funding will not fall.
In the autumn statement, the Chancellor recognised that the sector has risen to the challenge thus far. That is why, unlike most of central Government, local government was exempted from the further 1% top slice next year, which is worth approximately £240 million to councils. However, towards 2014 and beyond, local government needs to continue to find better, more efficient ways of doing things. We need to remember that the money is not created by a central Government money tree; it is hard-earned taxpayers’ money that—