Lord Smith of Leigh
This House takes note of the Local Government Finance Settlement.
Lord Smith of Leigh
My Lords, I am grateful to have the opportunity to raise the issues created by the local government settlement for 2013-14 and for the wealth of talent from local government who will contribute to the debate. I look forward to that. I confess that I presented my first budget in 1983-84, 30 years ago. Those were tough times in the era of the Thatcher Government but not as tough as we have today. Last week, in Wigan, we agreed our next year’s budget proposals with some £18.9 million of cuts on top of £43 million achieved over the past two years.
I declare my interests: I am leader of Wigan Council, chair of the Greater Manchester Combined Authority, vice-chair of SIGOMA and one of the many vice-presidents of the LGA in this House. This year’s settlement was announced on 19 December but it was no Christmas present for local authorities. It is by far the most complex settlement ever—certainly, in my memory—and included the new system of local government finance, which was agreed during the autumn of last year and moved funding towards support from business rates. Of course, we do not understand the impact of the current rating appeals. As regards moving council tax benefit support to local authorities, I think that in the debates on the Bill, we talked about a 10% reduction for local authorities. For my authority, it will be just over 15%, so we have that to cope with. We have got changes to specific grants, such as the funding for academies. A local authority near me, Trafford, has lost about £5.1 million from this change but its total budget was only £3.3 million.
The new homes bonus has been cut. We have got new capping rules, which will allow local authorities to increase council tax by 2%. Unusually, this year we can add precepts, as well as levies, from transport authorities and others. Perhaps it is surprising that public health money allocated to local government was not included in the settlement although it has come through. Those are some of the changes but we have not mentioned the effect of the public spending review and the reduction in grants to local authorities.
During the passage of the Local Government Finance Bill, I made the point that we are transferring greater risks to local authorities with this settlement. Business rates are going to go to local authorities, as will the impact of business rate losses. A major supermarket catching fire could lead to the closure of that supermarket and, therefore, there will be no business rates. That cost will be on the local authority. We also debated for some time what the collection of council tax would be under the new arrangements. I do not think any of us expect that to be anywhere near 100%. There are one or two smaller local authorities which I think in future are financially vulnerable. We certainly need to keep a watch on that.
“Local government has borne the brunt of cuts to public spending and the settlement announced confirms that this will continue to be the case until 2015”.
Not my words, but words that I can agree with, in which local authorities have taken some 28% reductions while Whitehall departments have only taken an 8% reduction. Those words were stated by Sir Merrick Cockell, chair of the LGA, and I understand that he is leader of a local authority in London with which the Minister may well be familiar.
Despite the Government’s mantra about fairness—part of which I caught at the end of the previous debate—the cuts have different impacts in different parts of the country. Over the past two years, under the Government’s new measure called Spending Power—unknown two years ago—the average reduction for local authorities has been £91, but in Dorset the average reduction has been only £8.50. In Knowsley, it has been £229 and in the current settlement—I apologise to my noble friend on the Front Bench for making this comment—Luton has gained by £12.40 whereas Rochdale has lost by £57.50.
What is fair about a distribution that is treating local authorities so differently that they are having to cope with similar problems in different ways? How is local government coping with the scale of cuts that is forced on them? The answer is that they are actually coping a lot better than many central government departments, and achieving some of these savings largely on target. As a practitioner, I am the first to admit that there are still significant efficiency gains which local authorities can and must pursue. To give evidence for this, in my recent budget we were able to take £1 million off our IT services because we had gone out for a joint procurement with a neighbouring authority which saved that amount. There can be efficiency savings, but the scale of what is demanded of local authorities cannot be achieved.
The Secretary of State has recommended to local authorities that they should use balances. At best, this is only putting off the evil day. Towards the end of last year, I was acquainted with one local authority which, because it had been a hung council, had dithered for two years without making any cuts. They had used all the balances in making the budgets balance. However, come the third year balances have gone. They now have to get back on track and are in the process of making savings of £100 million in one year. As I mentioned, the risks for local authorities have risen because of the new funding regime and risks need to be protected by local authorities so inevitably will be to be a high level of reserves to cope with that.
In my own authority, I use reserves in the concept of invest to save, that is to spend money upfront now which will lead to savings elsewhere. We have got a significant capital programme to improve the basic quality of our road network, which is enabling us to save roughly £1.5 million a year on highways maintenance and the day-to-day repairs of patching up and so on. If you improve the fabric of the road, you can make savings. That is how we are using reserves.
We can try to make the savings by putting the cost upon our employees. For the past two years, we have had a pay freeze in local government. We have now reached the end of that road. It is time in the forthcoming year that local authority workers, like other workers, have some compensation for the impacts of inflation and other things. When we have done all those things, we are still left with reducing the services provided directly by local authorities. If we are lucky, some of these services may be taken up by community groups. We have been successful in transferring a small library to a community group, but that is a small library in a small location. Clearly it could not happen with a major library and that is only going to happen in one or two cases. In most cases, we will start to cut and reduce; services will disappear. Due to the scale of the cuts, no area of local authority spending can be exempt. The impact on individuals and communities will be severe.
Those who have seen the news today may have seen the report of the Coalition of Disabled talking about the impact of local authority cuts on people with disabilities. It says that a £1 billion shortfall will affect disabled people across the country. Some of the cuts that we have decided to make in our adult services and in our local authorities will reduce the cost to us in local government, but they will simply shunt costs across to the NHS. In a sense it is not a real cut in public spending, it is simply moving it from one area to another.
With the additional redundancies that we are creating we are doing damage to local economies and to local people in communities. I think that we are becoming a less civilised place. We are seeing a reduction in provision for the most disadvantaged and vulnerable in our society; we are seeing a reduction in provision of the arts; we are seeing a reduction in the provision of the local library service. The House has debated on numerous occasions—so I do not want to get into the detail of it—the forthcoming crisis in the provision of social care, simply illustrated I think by the so-called Barnet graph of doom. These looming pressures will and are already beginning to affect local authorities, but I want to remind Members that this is not a cost which will affect just social care. During the past few months, I have been scrutinising the budget for Greater Manchester transport to make sure that it has kept within its budget limits. It told us that the prospect of more pensioners coming through with free travel—not national but local travel—will have a significant impact on its budgets over the next couple of years.
We cannot simply continue with these slash-and-burn tactics that the Government are applying to local authorities. The cumulative, year-on-year, effect of cuts will and is having serious effects on services. Most of all, and perhaps worst of all, it is not working in what the Government want to achieve in cutting the public deficit. We estimate in Greater Manchester that the impact of the Government’s policies has been to cut about £1 billion off direct services, but because of the rise in unemployment, we are paying out more in welfare payments. Health costs have gone up, so public spending has gone up in Greater Manchester, not down.
There is a better way: the way of public service reform. Most public spending is still coping with the symptoms of problems rather than the cause. If we began a proper, full collaboration of services in an area, as shown by the community budget pilots, we could save—according to estimates verified by Ernst & Young—up to £22 billion over five years. Not only would we be saving public money but we would be improving the local economy, because the impact would be to get more people back into work. We would reduce dependency and improve outcomes for individuals and communities.
I recently visited a project for troubled families in my borough and was moved by the outcomes of, that project and by the extent to which those families lives had been turned round by the adoption of a different approach that looked to find ways to solve their problems rather than just assuming that the way to deal with them was to take the kids away.
Some parts of government get sufficient support, but clearly not all do so. The settlement also contained a significant reduction in the early intervention grant. My authority received a grant of £4 million. This was money to help children’s development in the crucial early years and is a way of reducing dependency, but the money disappeared.
I would like the Minister, in replying to the debate, to say that she will tear up the 2013-14 settlement, but I do not expect that she will. However, there are three things that I hope she will consider seriously when replying. First, it is a new system, so let us see whether we cannot carefully monitor the impact that this complex settlement is having and show willingness, if it is necessary—I think that it probably will be—to intervene in-year if the consequences for individual local authorities demand it. Secondly, let us begin an early dialogue with local authorities on the forthcoming settlement for 2014-15, which will, following the autumn spending review, result in more misery for local authorities. We will need to think about that. Thirdly, I hope that we can have serious conversations with willing local authorities on the reform of public services, which will produce better results for everyone.
Lord Tope
My Lords, I begin, as I always have to do in these debates, by declaring my interest as a councillor in the London Borough of Sutton. Given the subject matter under debate, I now have to add that I am a very recent member of its pension scheme and am therefore entitled eventually to receive a tiny pension.
The noble Lord, Lord Smith, began with his confessions. If it is something to confess, then I confess to moving my first budget as a council leader back in 1987, although for the previous 12 years I had explained to the Conservative authority how it could do better; indeed, ever since Anthony Crosland declared, within months of my election, that I had missed the party.
I thank the noble Lord, Lord Smith, for today’s debate and for the rather measured way in which he introduced it, although his unprovoked attack on Luton was a little unjustified. I agree with the comments he made towards the end of his speech concerning the need for public sector reform, and most particularly the opportunities that must exist not only for budget savings but for much better and more efficient working from what is now known as community budgeting. I wish that we could move a lot faster than seems to be the case thus far. That offers considerable opportunities.
While I thank the noble Lord for the debate and well understand why the Opposition chose to highlight this subject, the timing is a little unfortunate in that the consultation has just ended. If the Government already have a settled view, it is certainly not one that the Minister will be in any position to give us today; nor, therefore, do I imagine that she is likely to give us many clues as to what will be in the final settlement announcement when it is made. However, I hope that she will be able to respond to some of the points that will be made today.
As the noble Lord, Lord Smith, said, this was the latest ever settlement announcement on record, having been announced just before Christmas. Indeed, some necessary information was still awaited only a few days ago, not least the public health funding announcement, which was made just days ago. It is hard enough in a normal year—if there ever is a normal year—but this is a particularly bad year for this to be happening given the scale of change that has to take place in local government. Local government has to deal with the effects of previous years’ budget reductions, which are still working their way through the system, although the localisation of business rates was a very radical and welcome change, and we spent many happy hours debating in this Chamber the changes in the council tax support scheme. All this is coming at once and having to be coped with by local authorities, most particularly by staff in their finance departments. I hope that the Minister will pay tribute to their work and to the achievement of local authorities generally, councillors and particularly staff, and most especially staff in the finance departments. I am fairly confident that she will do so, given her background. That would make a very welcome change, not on the part of the Minister but as regards some comments made in the other place, which, frankly, make people in local government feel even more misunderstood and unappreciated. Kind words cost nothing but sometimes reap considerable benefits.
I think we all recognise that the late settlement to which I have referred was beyond the control of DCLG Ministers. Nevertheless, it was imposed and it has made life more difficult. However, the greatest innovation occurs in difficult times. I often wish that that were not so. Probably the greatest time for innovation is wartime. None of us would wish to experience that again, although sometimes it feels a little like that for local authorities. I wish that we could achieve that innovation in a rather more measured way and with a lot less pain than is being inflicted on us now. Nevertheless, we should recognise that, largely as a result of the unwelcome budget reductions and the scale and speed of those reductions, greater innovation is emerging.
We also see at this time of the year what I regard as the annual ritual of the local government finance settlement. It seems to bring out not only the best in some but the worst in everyone. For as long as I can remember, Ministers in all Governments have always claimed that the settlement was very much better than it ever turned out to be. I have been watching this ritual every year over 40 years. Local government always claims that it is the end of the world as we know it, but the world is still here and we still survive. Councils then enter into a bitter battle. Wigan attacks Luton, the north attacks the south, we argue with each other as to who is worse off, and urban authorities attack rural authorities. All this is done to get a larger slice of a cake, the size of which is never going to change. In doing that, we know that one authority’s gain will inevitably be others’ loss. What made this worse—this is perhaps one of the reasons why some northern authorities feel that they are getting a worse deal—was the very large share of local authority funding that came from central government and local authorities’ dependence on that. Too many local authorities all over the country—I suggest that this applied to a greater extent in the north than generally in the south, excluding some in London—were heavily dependent on central government funding. Inevitably when that funding is reduced, as it has to be, they feel the effects rather more. I hope that that will start to change as local authorities become increasingly able to raise a greater proportion of their budgets.
The noble Lord, Lord Smith, referred to a 28% reduction. That was, indeed, the figure from the DCLG for the reduction in the local government finance settlement. However, as we know, other departments have also required local authorities to implement their budget cuts. I have seen estimates of the actual reduction in local authority budgets ranging certainly between 32% and 35%, and in some cases the reduction is higher than that. As we all know, as the public sector funding cuts begin to bite, local authorities will inevitably have to curtail the expectations and needs of their staff.
I have stated that I am a London councillor and therefore I want to conclude with some issues of particular concern to London councils, although they have a wider application. The first is the results of business rate revaluation appeals. According to Valuation Office Agency data at April 2012, 24% of all appeals are in London and they represent 28% of the total rateable value of the local list in England. This must mean that the value of appeals in London is likely to represent much more than 24% of the England total. However, because the Government have used an England average to adjust the estimated business rates aggregate downwards, the adjustment is not enough to reflect accurately the size of appeals that London boroughs are likely to face. In other words, London boroughs’ baselines are likely to be artificially high, thereby leaving them more vulnerable to funding shortfalls.
London Councils has asked the Government to monitor the adequacy of that sum and I hope that the Minister will at least confirm that that will happen. Of course, London Councils is also urging the Government to address any such shortfall under the new burdens procedure. I suspect that the Minister will feel unable to give that commitment today but I hope that she will take it away and argue for it elsewhere. Finally on this subject, will the Minister confirm that, if appeals are successful, local authorities will have to reimburse businesses straight away but will only get reimbursement from government over a five-year period?
Another concern for Londoners is the proposed transfer of £150 million of undamped grant from urban to rural areas. The impact of this change will fall disproportionately on London. On London Councils’ analysis, this suggests an overall funding loss of around £75 million in undamped grant for London. I know that the Minister cannot make any substantive comment on this today, but I hope she will confirm that any such changes in the final settlement will be accompanied by robust factual analysis to support them. I know that London councils have made their own representations individually and collectively to Ministers and I have no further time to add to those.
I echo the words of the noble Lord, Lord Smith, in introducing this debate. Local government generally has performed exceptionally well under exceptionally difficult circumstances. It is widely recognised as the most effective and efficient part of the public sector, and it may be that local government should be giving 50 top tips for saving money to the Secretary of State rather than the other way round.
Lord Beecham
My Lords, last week the Government published their mid-term review. It was not so much a candid assessment of their first two-and a-half years as a Candide assessment, where everything is for the best in the best of all possible worlds. We read in the document that the “shared instinct for decentralisation” on the part of Tories and Lib Dems has apparently become “an organising principle”, with,
“an historic shift of power ... to put our counties, cities and citizens … in control of their own affairs”,
with,
“sweeping reforms to increase local authority freedom,
and,
“the ability for councils to finance themselves independently through retaining 50 per cent of the business rate”.
The latter, of course, is determined by the Government. Yet Eric Pickles was the first Cabinet Minister to offer up cuts, in his case of 30%, to the Chancellor after the election—nearly four times the scale of cuts suffered by other central government departments. He continues to preside over a massive reduction in resources on a scale unprecedented even by the standards of the Thatcher years. Characteristically the finance statement and its accompanying documents were riddled with inaccuracies, so that the website had to be taken down after representations from council treasurers. Equally characteristically, the Secretary of State not only underestimates the scale of next year’s cuts, he said next to nothing about the even bigger cuts to follow in 2014-15, which for many authorities are likely to be in the region of 7% to 8%. Perhaps he had in mind consideration of the forthcoming county council elections. The pain would to some degree therefore be deferred until the following year.
The Government seem determined to move inexorably away from a needs-based system which, for all its unevenness, at least sought to address the disparities between more and less prosperous areas, to one based on crude numbers. However, there are matters of general application and I will return later to the issue of distribution. These are matters which have occasioned profound concern across the local government family and the political divide within it. For example, the Local Government Association—yet again I declare my interest as an honorary vice-president and as a member of Newcastle City Council—draws attention to what is a real cash cut in services for all councils so that a few might be permitted to capitalise up to £100 million of redundancy costs from capital receipts or borrowing. No proper explanation has been given for this cut, apparently made for “accounting reasons”. Perhaps the Minister will give us the reason—if not today, then subsequently. Perhaps he will also explain where the £100 million of local government cash has gone.
Similarly, as the noble Lord, Lord Tope, has pointed out, many councils will face problems over rating appeals, many going back several years. It would appear that they face the risk of having to fund 50% of the backdated costs of successful appeals, even though the money will already have been paid into the national pool. That risk should ideally stay with DCLG. I understand that the department is providing funding to cover this for a period, but what are the Government doing to secure the expediting of hearing appeals by the Valuation Office? I illustrate the problem by referring to my own authority, where there are outstanding appeals against the valuations on the 2005 basis on 100 properties with a rateable value of £30 million—that is just for one local authority—and the DWP has made the largest claim, which goes back over six years. What action will be taken to deal with that?
There are other common issues, for example a further cut of 30% nationally in core services such as childcare, cuts in support for concessionary travel, and youth and education services, and the holdback of £150 million of early intervention grant which also comes with a 28% reduction compared to the present year. In addition to these significant issues there are huge problems around issues of distribution. It is here that the seismic shift from a needs-based approach would be most keenly felt. This is not a simple north/south issue. Inner London boroughs, coastal towns such as Great Yarmouth and other communities—some urban, some rural—with significant economic and social problems in different parts of the country all suffer, although if you look at the regional map, there are marked regional differences.
Consider the new homes bonus, largely financed by top-slicing money which would have come to local government anyway—a fact often forgotten. The effect is to divert resources from the less prosperous areas to the more prosperous, where the housing market is more buoyant. Newcastle will admittedly benefit from the bonus, to the extent of a little over £3 million. The problem is, we lose nearly £6.5 million as our share of the top-slice grant, so we are nearly £3.5 million worse off, despite making significant efforts under councils of both political persuasions to facilitate new homes building. Note too the perverse effect of the damping regime, which funnels moneys from authorities losing significantly more spending power per head than some of those who receive it. I referred in a previous debate to the £40 million that Surrey received last year, which went straight into its reserves. This apparently will increase to £63 million next year and will be built into the base thereafter.
Next year Wokingham, which Ministers perversely cite as a comparator to Newcastle—although I have not heard the noble Baroness do that yet—will receive £204 funding per dwelling in damping grant. That is three times the amount for Newcastle, which has had much larger grant cuts per dwelling in recent years. This comparison is wholly invalid. The Government have cited a difference in spending power—that is to say council tax, business rate and grant—of £700 per dwelling, but half of that is due to the higher costs of adult and social care in a much poorer and less healthy population, one-sixth to council tax support, another sixth to grant for homelessness, £95 of the £700 for children’s social care—and we have proportionately four times as many children in our care as Wokingham.
The Minister recently wrote to my noble friend Lord McKenzie with some information about the Social Fund allocations. It is very illuminating, because it emerges that the Social Fund allocation to Newcastle, which must surely be a critical measure of deprivation, is 15 times the size of that for Wokingham. Even allowing for some adjustment for population there clearly is a huge disparity in need, yet the current system does not reflect it and is decreasingly reflecting that. It wholly invalidates the comparisons that Ministers are drawing.
Another instance is the funding for concessionary travel. We receive four times Wokingham’s funding for that but our costs are nine times greater. What is true of Newcastle is true of much of the north-east and other hard-pressed regions. The north-east as a whole will lose £275 million under the new homes bonus schemes by 2018. There are real concerns about a cut in resource equalisation and the 30% cut in support for looked-after children, where the numbers and costs are increasing by 26% in the north-east compared with 10% nationally—a function of the region’s economic plight.
In Northumberland, a county with the second longest road mileage in the country, apparently with the same area as Cyprus and much of it exposed to extremes of bad weather, government funding for highway repairs will fall by more than 40% by 2014. My city faces a yawning gap of £100 million a year by 2015-16 on a current net budget of £266 million. The closure of the gap will require cuts of unprecedented magnitude. In the ward that I represent, which is among the 10% most deprived wards in the country, we expect there to be the closure of community buildings and a playcentre, and a reduction in standards of maintenance of open space, before one takes into account the significant loss of income that many constituents will incur as a result of the benefits changes. Other councils in the region face similarly appalling prospects as the relative needs assessment reduces by £573 million, compared with an increase in the central share of £871 million—and that is just for next year.
What does the Secretary of State have to offer? Fifty shades of Pickles, it seems. He provides a patronising list of possible savings, from the stultifyingly banal, such as not providing mineral water for council meetings, to the patently obvious, such as increasing council tax collection—although that will not be easy in light of the council tax benefit cuts. It will become uneconomic to collect tiny amounts from people who can barely afford to pay and who did not have to pay in the past. I say nothing about the bill for biscuits in the Department for Communities and Local Government, which apparently increased by £10,000 last year. The Secretary of State ignores local government’s record in driving through efficiencies for many years—to which the noble Lord, Lord Tope, referred—leading the way for the public sector, just as he ignores the damage to local services and the communities they serve in the damage this Government are wilfully inflicting, especially on those areas and their people who can least bear it.
My noble friend Lord Smith and the noble Lord, Lord Tope, referred to public service reform. It is right that councils should do more to collaborate and make savings, not merely among themselves but across the whole public sector. I recently asked a Question about that. I look for collaboration between the Government and local government across the whole range of the public sector to engender savings that might, to some degree, mitigate the disaster that is about to strike our communities.
Baroness Smith of Basildon
My Lords, I am grateful to my noble friend Lord Smith of Leigh for providing the opportunity to have this debate about the local government settlement. It is clear from the speakers’ list and from what we have already heard that there is a huge amount of experience in your Lordships’ House. I suspect that across the Chamber our reasons for taking part in this debate are similar—we value and support local government, not as an entity in itself but for what it can achieve. I spent eight years as a county councillor in Essex, my degree is in public administration, I have worked in local government and was a Local Government Minister here and in Northern Ireland. There were times as Minister when I felt that I was a poacher turned gamekeeper, turned quarry—as I am sure the Minister will understand. I am also a vice-president of the LGA.
We have heard details of level of cuts and I want to focus on the impact of the financial settlement. My noble friend Lord Smith was clear; we are not against efficiencies or genuine savings, but this settlement goes way beyond that in its expectations. In 2011, Secretary of State Eric Pickles, in his inimitable style, told his party conference that local government could, “do more for less”. This financial settlement is certainly testing that premise. Joanna Killian, who chairs the Society of Local Government Chief Executives and is the chief executive of Essex County Council, expressed her concerns that the,
“local government settlement confirms that local government will continue to bear the brunt of public sector cuts”.
She warned:
“This settlement will increase the risk of more councils being financially unviable”.
That view is supported by a recent report by the Audit Commission—soon to be abolished by the Government —which states that auditors consider 43% of larger single-tier councils and 34% of district councils to be at short-term or medium-term risk. There is no party-political divide on how dangerous the situation has become. That is a professional assessment from auditors, councillors and officials. The leader of Kent County Council, Conservative councillor Paul Carter, warned,
“the tank is running on empty”.
Sir Merrick Cockrell, the Conservative chair of the LGA, called the cuts unsustainable. The notion of making changes at the margins, cutting back on some services, and increasing or introducing reasonable charges has gone. We now face a fundamental re-evaluation of what local government is able to do.
While the Government talk of localism, every action they take removes not just money from local authorities but the power to tackle those very problems in society that the Government are exacerbating. I accuse Ministers of misleading local government about their intentions regarding what local government can and should do. When the Localism Bill received Royal Assent, Ministers hailed the legislation as,
“the biggest transfer of power in a generation, releasing councils and communities from the grip of central government”.
When Eric Pickles became Secretary of State, there was a view that as a former council leader he knew the value of local government. He even spoke of the “power shift” from national to local. A hugely entertaining read, in retrospect, is his speech from the Conservative Party conference in 2011. He said that in comparison to Whitehall local government has been the most “efficient part” of the public sector. “My friends”, he said,
“you can feel that power is shifting … from Whitehall to councils … Together we will shake off the shackles of Labour and Britain will become great again”.
I allow some leeway for conference rhetoric but Ministers perpetuated this myth as they pushed the Localism Bill through Parliament.
We often hear talk of power without responsibility but the way in which this Government are treating local authorities is the reverse. This is passing on responsibility without power. Ministers repeatedly state that budget decisions are the responsibility of local councils and that they should decide where the axe will fall. But it is central government—despite warm, meaningless words from Eric Pickles that local government is the most efficient part of the public sector—that hands down the budget on which councillors have to balance the books.
If central government decides the funding levels it holds the power and all that local government is left with is the responsibility—responsibility for trying to manage cuts to have the least impact. This is passing the buck. While local councils are trying to provide services, most of them statutory ones that the Government say that they must provide, the Government are removing the resources that allow them to do so.
Here are some examples. Labour-controlled Thurrock Council, which is a unitary council, is seeking to manage cuts of £13 million this year. One of its difficulties has been the relatively new government concept of “spending power” that assumes councils are able to raise the same level of council tax next year as they are this year. The new local council tax support scheme that replaces council tax benefit means that there is a significant difference. In Thurrock that will be a reduction of more than £8 million. I wonder if the Government really understand the impact of their policies.
Conservative-controlled Southend Council, along with many other councils, 10 of which are Conservative, has rejected the Government’s plans for a further freeze on council tax as being unworkable, despite having to make significant and damaging cuts. Recently, Southend Council leader Nigel Holdcroft said:
“We no longer have any leeway and we have to make real cuts to services … to balance our books—and that involves making some very hard choices”.
Even Conservative councils, which clearly do their best to support their Government, find the Government’s financial settlement unworkable. Southend is not alone. A number of other Conservative councils have not taken the Government freeze this year.
Earlier this week at the council of my home town, Basildon, virtually every member of staff was handed a personal letter headed, “Transformation programme: collective redundancy consultation”. In all my years involved in local government I have never seen anything like it. I quote:
“The reduction in resources and the expectation of localism means the council needs to work together with partners and local people to create an environment where everyone can thrive ... The role of the council is changing from simply doing things for people to one of working with them to do more things for themselves”.
That may be worthy of “Yes Minister” but it goes on to promise,
“a varying degree of change for all of us”.
Not quite all, as I shall come on to. The real purpose of the redundancy consultation is to warn staff that,
“there is a risk that the council will be unable to continue to provide work for all its employees”.
In other words, not a single member of staff, other than the most senior, I understand, has job security. Everyone who has received that letter is being made aware that their job is at risk. Why otherwise would they be sent the letter? The deputy leader of the council has already said that he expects up to 200 redundancies in the next few months. And there will be more to follow. How did those staff, many long term and not on high salaries, feel when they went home that night—numb, scared? They were certainly demoralised. As I have mentioned before in your Lordships’ House, this is the same council which, apparently against advice from the Secretary of State, will pay a part-time executive director £100,000 a year and according to reports from council documents paid its top 12 earners £200,000 more than in the previous year, 2011.
The council refuses to release information to the public to confirm and explain this arrangement, despite having received a letter from the Secretary of State that ordered it and every other local authority to release details of salary and perks paid to senior executives. Is it a coincidence that a council that behaves in this way to its staff has seen long-term sickness almost double? In six months from April to September 2012, mental health has been the main cause of long-term sickness absence and has risen from fewer than 100 days to more than 200. That information comes from a publicly available council document.
There is a serious implication here for administration. Cuts in staff have an impact on the scrutiny of the administration. Last week, when Councillor Gavin Callaghan received an inadequate response to an inquiry regarding unused and vacant buildings locally, he was told that it would do its best to provide information but that it was “quite short staffed”. The information was required for a meeting last night. He asked for the information more than a week before. However much they wanted to, the staff was unable to help. Effective governance needs effective scrutiny. Opposition councillors can fulfil their scrutiny role only if they have the information to do so.
My final point on Basildon Council regards apprenticeships. Yesterday the council issued a press release congratulating itself on participating in a careers convention for schools and its offer of apprenticeships. I am hugely supportive of apprenticeships but I am very concerned at reports that as staff numbers are reduced apprentices are moved into their desks to undertake some of their work. This of course is much cheaper.
My last comment on the settlement is to remind ourselves that police and fire services are also affected by these cuts. I am appalled that Essex no longer has a single 24-hour police station. Only yesterday, we saw the London police and fire and rescue services respond so quickly to the dreadful helicopter crash at Vauxhall Cross. London fire services are facing the loss of 12 fire stations, two of which attended Vauxhall, 18 fire appliances and around 520 staff.
Some weeks ago I met representatives of the Metropolitan Fire Authorities about the budgetary pressures that they face. They were pragmatic and professional but clearly very concerned. Ministers will have to be very confident indeed that there are no public safety implications if they go ahead with these significant cuts to the fire service. To find a way forward, a representative of the Metropolitan Fire Authorities has asked the Minister whether the discretion afforded to the eight fire and rescue authorities to raise council tax precept by just £5 can be extended to all fire and rescue authorities, given that their precept levels are relatively low. I hope that the Minister understands their anxiety and can give a response.
Local government services range from the major life-changing and enhancing to the mundane but include those services that bind and connect communities and make a difference to their way of life. I am known to be pragmatic and practical, so I am not exaggerating when I say that this Government are putting too much of that at risk. I hope that the Minister can reassure me that that is not the case.
Baroness Garden of Frognal
My Lords, I remind noble Lords that timing is very tight. I ask noble Lords to sit down as soon as the Clock hits 10 minutes.
Lord Greaves
My Lords, I, too, had to present council budgets a quarter of a century or so ago. The one that I particularly remember was in 1990, which was the poll tax budget. Pendle was particularly badly hit. The then director of finance and I kept reminding ourselves of what happened to Wat Tyler after he organised poll tax riots 500 or 600 years earlier. The result of it all was that the electors decided to remove me from the council and the director of finance became the chief executive. He is still there and the electors have recanted. Therefore, I declare my interest as a member of Pendle Council, a member of the executive and a vice-president of the LGA.
I want to talk about a group of councils that I think was alluded to by the noble Lord, Lord Smith of Leigh, which I call the sorry seven. They are seven ordinary shire district councils that are being clobbered even harder than everybody else by this settlement. They are Hastings, Great Yarmouth, Barrow-in-Furness, Bolsover, Hyndburn, Burnley and Pendle. They are two seaside towns, with all the problems of declining seaside towns over the decades, and five former industrial areas in the north of England, if Bolsover is in the north of England. I cannot speak in detail on all of them but they are all very similar and I can certainly speak about Pendle, which is a district of 90,000.
The first problem with districts such as this, typified by Pendle, is that 70% of our houses are band A for council tax, so there is no great resource that we can rely on compared with other councils. The problem with business rates is that they have been declining in many parts of the borough over the years because they were based on old mills, many of which have gone and are still being removed. Indeed, the owners of old mills are still demolishing them in order to avoid paying business rates. We need an expansion of our industrial and commercial base. Achieving that in areas such as ours requires public sector investment—not completely public sector but with partnerships and all the rest. At the very least, it requires public sector seed corn and assistance. If councils have no money, they will not be able to do this and the result will be that the business rate base will decline.
The sorry seven councils, because of the lobbying that they have done and the problems that have been pointed out, are now eligible for something called the efficiency grant, whereby Ministers will try to micromanage them in a number of different ways that they think are desirable. Why Ministers such as Brandon Lewis or Eric Pickles should want to micromanage Hastings, Pendle or even Great Yarmouth is a mystery, but there we go.
The Government say that the top cuts for any council are 8.5%, but if you do the sums for councils such as Hastings and Pendle in cash, the cut in cash grant this year is 17%. Even if you include the small amount that these places get for the new homes bonus, the cut is still 15%. It will be even worse in 2014-16.
I have some projections of the total core revenue funding that has been available over the years to my council and is now projected. The total funding for 2009-10 was £13,186,000. Some noble Lords will think that these are tinpot little places but they are shire districts. They are not bad places but we do not have as much money as big councils. The projection for 2014-15, which is five years later, is £6.9 million. When my noble friend said that some councils might have a 30% cut over that period, we are talking about a 50% cut, more or less. That is the scale of the disaster that is affecting the sorry seven—this small group of small councils, whose problems could be solved by the Government with relatively little money but they are not doing so.
As far as we are concerned, we have done everything that they wanted us to do— or almost everything because we have not abolished our chief executive. We cannot understand how you can run a council without one and a half chief officers and directors, which is what it will become. We have an arm’s-length leisure trust and we have stock transferred our council housing at the behest of the previous Labour Government because they were bribing us with vast amounts of money to do that. We have outsourced many back-room services and a front-counter service and got the private sector partner to build new offices in the middle of Nelson. We have a highly successful joint venture with a local development company, whereby it raises two-thirds of the finance, the council raises a third, and most of that is put into land, buildings and so on. However, without any money you cannot go on doing things like that for ever.
We have had a radical stripping-out of top officers. We are supposed to be in the top 10 most efficient councils in the country—I do not know how people work that out, but that is what is said—and we have apparently had more awards than any other council this year. However, it makes no difference. We have to subject ourselves to this extraordinary procedure, whereby Ministers in the DCLG will assess whether we have qualified for this new efficiency grant. Of course, we have to assume that we will get it in order to make any sort of sensible budget. If we did not assume that the £1 million or so in efficiency grant that is being offered will come, we would be in even worse straits—and yet, how do we know that we will get it? The whole system that is set up for this small group of councils is absolutely crazy; nobody could dream it up.
I will say a few words about the new homes bonus, which other noble Lords have mentioned. According to our chief executive, who spoke to me this morning, the new homes bonus is “at the heart of what will kill Pendle and councils like it” in the next two or three years, and that applies not only to the sorry seven. As has been pointed out, the new homes bonus is topsliced; it is taken out of the general fund for local authority spending from the Government. It is then paid to councils where houses are built and occupied. In other words, it is a transfer of funds from areas where housing is not being built to growing areas, where it is. On the face of it that seems quite reasonable, so why not do it?
The first reason is that whether you are able to build and occupy houses in your area is not under local control. Even with social housing we have problems making the figures stack up with the rules laid down by the Government and the Homes and Communities Agency. However, for commercial housing you have to have people who are prepared and want to build houses in a sensible way in sensible places in your area. If you are not in a booming or growing area, that is not very easy. The new homes bonuses that have been allocated so far have not been on the basis of recent decisions anyway, but on the basis of historic actions and decisions—what people put in local plans three, four or five years ago—that bear no relation at all to present policies. There is no damping mechanism on the new homes bonus as there is on the change in business rate system, so it is simply taken away and handed out to other places.
If I understand the figures correctly, the new homes bonus in 2013-14 for new properties—the rest make only a slight difference—will be: £116 million for the south-east councils; £144 million for London; £57 million for the north-west; £21 million for the north-east; and £53 million for Yorkshire and Humberside. In other words, London and the south-east will receive £260 million and the three northern regions will altogether receive £131 million.
I will not say that there are no places in London and the south-east that have needs similar to those of much of the north of England. However, that allocation, on the face of it, seems to amount to a redistribution of funding and resources from the north of England to London and the south-east of England. The Government need to answer the question of how that can be justified on any basis that is in any way related to actual needs and what people do on the ground, and I seriously wonder if the Government will be able to do so.
Baroness Armstrong of Hill Top
My Lords, first, I apologise for being late and I thank Members on the Front Bench opposite for their indulgence. I got to Durham station in good time following a meeting in County Hall first thing this morning, only to find that the train I was due to catch had been cancelled because of a body on the line, and the next train was half an hour late, so I am afraid that I missed the beginning of my noble friend’s speech. I want to intervene only briefly, I hope.
Despite all the rhetoric, I am concerned that this year’s settlement is far more complex than previous ones and that therefore it is much more difficult for authorities to work out precisely what they will be getting. Indeed, certain grants have not yet been announced, but here we are at the end of the formal consultation period and at the point where, by law, local authorities must make their decisions. I had hoped that the impact of localism would mean that the settlement would be much more simple and straightforward, but in fact the opposite has happened. It means that localism is not yet a reality. Elements of the settlement are being tied in for a long period, which goes against the principle of fairness. Local authorities largely now try to plan over a three-year period but, because of the lateness of the settlement, they are not in a position to do that with confidence. They now rightly consult their local council tax payers and residents much more than they ever did, but that is being made more difficult when they do not have clear figures with which to work.
I come from the voluntary sector and I declare my interests in all the charities that I am involved with in the north-east that inevitably work with local authorities. They do not know what their allocation for next year will be, so many of them are having to put workers on 90-day redundancy notices in the hope that it will not be necessary but, none the less, they are having to do so in order to comply with the law. That causes great unrest in those charities.
The settlement this year has come inordinately late. Only last Friday did authorities learn about their public health settlement, while many other aspects have not yet been decided. I do not think that that is acceptable to authorities, so I would beg the Government to improve their performance next year. As my noble friend Lord Beecham said, on top of the settlement arriving only on 19 December, which is very late—in the department I used to try to insist that it was delivered during the last week of November at the latest; that deadline subsequently slipped but I think it is what central government should go back to—it is also true to say that there were a lot of mistakes in it. Even the overall amounts in terms of spending power were quite wrong when the settlement was first made in December. It has been incredibly difficult for local authorities to work out with their partners and stakeholders just what the impact is going to be. My noble friend Lord Beecham also pointed out that this has had a real effect on the distribution of the settlement.
I am at a loss to understand why deprivation has so little impact on the decisions being made around the settlement. I wish to goodness that we did not have to say in the north-east that we continue to have more people unemployed, more people on low wages and therefore more people on benefit than in other parts of the country, but we do. That is the reality. That reality means that the needs which local government has to respond to are greater.
On top of that, the Government have set the damping arrangements in stone until, I understand, something like 2020, which I find inexplicable. In my era, damping always caused us enormous problems. Nobody liked it and everybody asked why it was necessary. I used to spend my time explaining that, if you are losing a lot of money, you need a bit of time to adjust. This year, however, damping is working the other way. In Durham, although we are losing, on current projections, over £200 million during the period to 2018, this year we will have to contribute over £9 million to the damping grant, whereas—as my noble friend says—Surrey will receive £59 million. In fact, Surrey is getting an increase in its settlement, whereas Durham is getting substantial decreases in the basic settlement, yet it still has to contribute to the damping, which will give Surrey even more money to distribute to its less deprived population. This seems inexplicable, and I have had difficulty in trying to rationalise it with people, particularly councillors in the locality.
Deprivation raises its head very quickly in all sorts of ways. In Durham this year, we have to make available services for the homeless for the first time ever. The charity that I am involved in has just entered into a contract with Durham County Council to offer services to rough sleepers. There have been homeless in the city, but rough sleepers have never been found there before. That is a consequence of deprivation and of the changes that are going on at the moment, and the local authority has responsibility for it. I would be having a go at the authority if it did not accept that it has a responsibility to respond to this. However, it costs money. Although it is not a massive amount in terms of the overall budget, it is a reflection of that deprivation, and we fear that the changes in benefits on 1 April will bring further challenges. There are huge challenges to local government. I have a rule in the charity that we do not whinge. We are not whingeing; we are asking for timely, proper announcements, and for recognition of deprivation and the cost that that deprivation implies.
Lord Shipley
My Lords, I declare my interest as vice-president of the Local Government Association. I thank the noble Lord, Lord Smith of Leigh, for initiating this debate, which gives us an opportunity to contribute to the national debate on the settlement.
The funding cuts for local authorities are worse than expected. It is not clear to me why local government has had to absorb such large reductions, nor do I think it is right that the 28% reduction in government support funding over the four years of the current spending period is now, in practice, nearly 33%. The pressure on services, particularly adult services, is very great and the extra 2% cut now planned for 2014-15 is a step too far—not least because cuts in government support impact particularly hard on those councils more dependent on government grant. In terms of the outcomes from the consultation I hope that the Minister, together with her colleagues, will bear this in mind.
In this debate I want to concentrate on council tax: the levels of council tax charged by local authorities in England and the consequences of a year-on-year freeze. In too much of the public discussion about the cuts and the fairness of them, the role played by council tax in alleviating some of those cuts has been strangely absent.
The public debate over the settlement has been dominated by those trying to persuade the Government to adopt their definition of fairness. Never in the history of local government settlements have the words “fair” and “fairness” been used as much as they have in recent weeks. The Government claim that the settlement is fair to everyone. In the settlement announcement on 19 December, the Secretary of State said:
“This is a fair settlement, fair to north and south, fair to rural and urban areas and fair to shires and metropolitan England”.—[Official Report, 19/12/12; col. 1604.]
Northern councils argue, correctly, that they face much bigger cuts than councils in the south and say that this is unfair. Some councils in London face much bigger cuts than elsewhere in the south too. Overall, the reductions in the more deprived areas are twice the average reductions across the country. However, councils in the south counter that the level of support per head in the north will still be much higher than in the south even after the latest round of reductions in government support.
Rural councils complained in late December that the spending settlement hits rural areas harder than urban ones. In the summer, south-east councils published a report claiming that a fairer deal was needed for the south-east, because south-east residents faced unfairly high levels of council tax as a direct result of low central funding for south-east authorities. They pointed out that per capita grant allocations in the south-east outside London were half the level of London and of the metropolitan areas.
So, perceptions of fairness vary. Equalising resources through government funding is surely fair, as a principle, but is it not also fair that levels of council tax charged should be more equal between different councils? Some councils charge more than others despite being in the same part of the country. Similar properties, with householders on similar income levels and with similar household costs, can pay widely different amounts of council tax.
As an example, the average council tax this current year in my home city of Newcastle upon Tyne is £1,039, which is the third-lowest in the north-east and which, incidentally, is £540 lower than Wokingham. The lowest average council tax in the north-east is £904 in Sunderland and the highest is Redcar at £1,166—a difference of £262. At band D, the highest in the north-east is £1,681 in Hartlepool and the lowest is Sunderland at £1,343—a difference of £338. However, household incomes, housing costs and the general cost of living are not that different across the north-east. So why is there a demand that only the Government should solve the funding gap for a council which charges lower council tax than its neighbours when it could raise extra income by charging a council tax closer to their level?
I will go a little closer to home. On average, a Newcastle household pays £1,039, which is £20 less than a Gateshead household, which pays £1,059. At band D the difference is greater: Newcastle charges £1,512 but Gateshead charges £1,600—£88 more. If we compare Newcastle to Northumberland, with which it shares a boundary, we find that although Northumberland charges broadly the same as Newcastle at band D, at £1,504, the average household in Northumberland pays £1,155, which is £116 more than the average payment in Newcastle. I am puzzled by why these differences are not being publicly discussed. Simple arithmetic tells us that a small rise in council tax to the level of a neighbouring council could generate significant sums to alleviate, for example, proposed library closures and cuts in cultural support over the next three years.
This takes me to the issue of whether council tax should be frozen. When the new Government proposed a zero council tax rise in their first year of office and gave councils an equivalent grant to cover the cost, I was in agreement with that freeze, having in previous years supported raising council tax by the rate of inflation and dealing with other rising costs through driving major efficiency measures. However, since the first year of the council tax freeze, despite the offer of time-limited freeze grants, councils have had options. In the current financial year, four north-east councils, all in the Tees Valley, raised council tax by 3.5%. They were prudent.
This year’s offer of a 1% freeze grant when costs are rising higher than 1%, and when councils could raise council tax by up to 2% without calling a referendum, needs to be thought about very carefully. Councils which continue to freeze council tax, possibly for two further years, making five in total, will end up in even greater dependency on the Government for their income. I think that this is a very dangerous strategy. Councils need greater control of their own finances by generating a stronger local tax base, which will in future, of course, include building business rate growth in which they will share financially.
The Secretary of State has said recently that councils have a “moral duty” not to increase council tax. I would not have put it like that. Surely the moral duty of councils is to deliver services needed by their residents, particularly those who are less well off. Councils could, of course, help themselves more by driving greater efficiencies in the way that they work. As an example, in his settlement announcement the Secretary of State said that if councils merged their back offices like the tri-borough initiative in London, they could save £2 billion. If those figure proved to be true, it would mean that there is potential for saving more than £20 million in Tyne and Wear—money that could be redirected into service provision.
I understand from the press that more than 20 councils in England are reported to have considered their financial position in the context of whether council tax should be frozen, and they have rejected this option and are planning to raise council tax by up to 2%. Of these, 10 are Conservative run. I think that they are right to choose to do this if they see it as being in the long-term interests of their residents. This is localism in action. It reduces dependency on central government and can avoid cuts to services. Crucially, it provides greater financial stability.
However, what if councils think they should raise council tax by more than 2%? The Secretary of State said in his settlement announcement that holding a referendum would be,
“democracy in action: if you want to hike taxes, put it to the people.”—[Official Report, 19 December 2012; col. 1603.]
Yet, apparently, none plans to do so. So, why do councils shy away from holding referendums? I am regularly told that it is not worth doing because there would be a no vote if a council went to a referendum. I doubt that that would always be true. Are those councils really saying that they are so detached from their voters that even a reasoned case would be rejected?
I think that councils need to show much greater leadership and self-confidence rather than putting all their efforts into trying to persuade everyone that this is only a matter for the Government to address. If they genuinely believe they cannot drive further efficiencies, why do they not put their case to their voters? If it is really true that libraries have to close, swimming pools are at risk and that cultural budgets have to be abolished, surely the public should be given the right to vote on the option of paying a little bit more to prevent this happening.
I agree entirely with the noble Lord, Lord Smith of Leigh, who asked for there now to be a discussion about the way forward, particularly in view of 2014-15. I would welcome the consultation and further discussion that he has called for.
Baroness Donaghy
My Lords, I thank the noble Lord, Lord Smith of Leigh, for initiating this debate, although there is an element of sadomasochism in having to go through this again when we went through it on 19 December. I wish I had had the time to do some research into how often members of the coalition Front Bench have said from the Dispatch Box “That’s a matter for local councils to decide.” Closing libraries; a matter for councils. Shrinking sports facilities; a matter for councils. Closing Sure Start centres; local government. Cutting bus services; that is up to councils.
In her letter to the noble Lord, Lord McKenzie, following the debate on the provisional local government finance settlement for 2013-14, the Minister wrote:
“It is entirely for local authorities to decide how much they are prepared to spend on council tax support”.
We have an “entirely” now. We should state quite clearly that the Government are responsible for what is happening to local authorities. I firmly believe that the population at large, when the impact of these announcements is finally felt, will know that it is the Government who are responsible, not local government. Historically, hand-washing in public has a very bad record.
As has already been said, the Audit Commission has found that the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure, compared with councils in less deprived areas. That says it all. I will not repeat examples that others have given in this debate. My noble friend Lady Smith referred to Joanna Killian, the chair of SOLACE, the Society of Local Authority Chief Executives and Senior Managers. Ms Killian said:
“This settlement will increase the risk of more councils being financially unviable and focus needs to be given to how this market failure is managed”.
How chilling a statement is that?
The single most important reason why I think the Government will be blamed is the localisation of council tax benefit. No Conservative partners in the coalition are participating in this debate, apart from the Minister, of course. So I will try to inject a Conservative view. The noble Lord, Lord Jenkin, said:
“The poll tax was introduced with the proposition that everyone should pay something … We got it wrong. The same factor will apply here, that there will be large numbers of fairly poor households who have hitherto been protected from council tax, who are going to be asked to pay small sums”.
Families already facing difficult choices between heating and food bills will receive a bill for council tax for the first time in March-April. Figures from the Institute for Fiscal Studies show that the average working family will lose £165 per year, while the average non-working family will lose £215. How many will be willing to pay council tax for the first time? One journalist has described this coalition government policy as a “death wish”.
I want to deal with the issue of council reserves. The Secretary of State has accused some councils of,
“stashing away billions, turning town halls into Fort Knox, whilst at the same time threatening to cut frontline services”.
This was in response to the Audit Commission’s report that English councils’ tax reserves stood at £12.9 billion in 2012, £4.5 billion more than in 2007. The Audit Commission considers that the building up of reserves is praiseworthy. Councils increased their reserves by £1.3 billion in 2011-12, despite budgeting to reduce them, and this has been a consistent trend over recent years.
The Audit Commission identified two factors that appear to have driven that growth. Some councils were highly effective in meeting their savings targets, creating underspends, which could be added to reserves. For instance, in 2011-12 the total service spend, excluding education, fell by 7.4% against a target of 6% in single tier and county councils and by 8.9% against a target of 9% in district councils. The second factor identified was that councils were,
“putting money aside to mitigate the risks of the ongoing cuts programme and changes to council funding from April 2013”.
That is all very sensible stuff, I would have thought.
The biggest concern expressed by auditors about the financial problems was that councils might try to address their 2011-12 problems through capitalisation requested under exceptional circumstances or unplanned use of reserves. It seems that councils cannot win, whatever they do. Does the Minister have any tips—perhaps one of the 50—about what is a reasonable level of reserve for a council, and would that be about the same level as the then Councillor Pickles stashed away when he was leader of Bradford Council?
We should not forget the impact on jobs in local government. Thousands have already gone and many more people will lose their jobs in the future. Thousands of years of collective experience will be lost.
Local authorities have had their improved efficiencies thrown in their face. They are subject to needless media attacks from the Secretary of State and at the same time they are to be given the dirty job of sending out council tax bills for the first time to people who can least afford it. I was trying to think of an appropriate song for local authorities to illustrate how unloved they must feel by the coalition Government. The only one I could think of was “Nobody Likes Me (Guess I’ll Go Eat Worms)”. That was not quite right. There was another one, however, an old Gracie Fields song, which was “I’m A Lonely Little Petunia In An Onion Patch, Oh Won’t Someone Come And Play With Me?” Perhaps they are a little twee for such a serious subject; other suggestions would be welcome.
Lord McKenzie of Luton
My Lords, I thank my noble friend Lord Smith for initiating and leading this debate today and acknowledge his record as a responsible and progressive leader of a local authority. I should make clear the position of Luton, so that it is on the record. Like lots of other authorities, we have had to face significant redundancy programmes, tens of millions of pounds of cuts, we now share a chief executive with two other authorities and we increased council tax last year. I said to the current leader of Luton Council, Councillor Hazel Simmons, that I would hate to have to face the problems that she has to tackle. In my day we may have agonised over a million pounds here or there, but nothing like the scale of things which councils are facing today—councils such as Luton, Wigan, Newcastle, Basildon, Durham, Pendle, and many more. I express my admiration, therefore, to those such as Councillor Simmons and my noble friend Lord Smith who stay at the helm and do their best to cope with the challenges that this Government confront them with and who use their democratic mandate to seek to protect the most vulnerable.
Our main focus today has been on the local government finance settlement, in the words of my noble friend Lord Smith, “the most complex ever”. My noble friend Lady Armstrong highlighted difficulties with the complexity, information still to come through and the tardiness of it and how difficult that made it to consult meaningfully with local communities and the voluntary sector. The settlement follows on from the first two years of the current spending round, and to see this in context, we should reflect on those first two years, in particular the report of the Audit Commission, Tough Times 2012, which is stark. Over the two years ending March 2013, councils will have had a cut in their funding equivalent to 9.3% of their 2010-11 revenue spending. This amounts to £5 billion. Looking at these two years as a whole, the deprived areas of the north of England, the Midlands and inner London have seen the highest cuts. For the 20 most deprived areas, revenue spending has fallen by 14%; in the 20% least deprived by 4.4%. The juxtaposition of this debate with that led by my noble friend Lady Hollis reminds us that unfairness in distribution of resources is not limited to local government.
We see this also in the latest proposals covering 2013-14 and 2014-15. The 20 most deprived authorities will have their spending power cut by an average of 8%; the least deprived by 0.7%. Once again, the most deprived authorities are to be hit the hardest. The Prime Minister’s local authority will gain 1.1%; Manchester will lose 8.2%. Total central government funding for all local authorities in England will fall by 3.9% in 2013-14, but there will be a swingeing 8.6% reduction in the subsequent year. We must add to that the cuts in the two preceding years and acknowledge that, from the Autumn Statement, we know that this pattern is set to continue to 2018. An efficiency support grant will come as limited welcome news to those few who receive it, Pendle included, but the settlement means that local government will continue to bear the brunt of public spending cuts. It is clear from what the noble Lord, Lord Greaves, said, that access to that efficiency support grant is not going to solve the problems of Pendle. The fact that it could have been even worse, with some of the top-slicing for academies and the safety net less than feared, appeals reflected in business rates aggregate, although perhaps not effectively enough for London, with no extra 2% cut in 2014-15, is cold comfort to those faced with having to grapple with the consequences of the settlement.
What will councils do in these circumstances? Of course, for the Secretary of State this should all be easy—just follow the great man’s 50 tips, and all will be well. It is as though councils had not endeavoured to pursue many of the ideas set out and, indeed, initiated some of them. Perhaps we can review the relevance of some of the suggestions. For example, on the proposition to improve council tax collection rates, can the Minister give us a view on the likely impact on collection rates of the new system of council tax support? Sir Merrick Cockell, chair of the LGA and referred to by other noble Lords, offered the view that most councils will have to ask people on lower incomes, including the working poor, to pay more council tax than currently. What is the Government’s assessment of how many councils will not have a scheme that is either the default scheme or equivalent to it? Research by the New Policy Institute suggests that of the first 130 schemes that it has reviewed, only 38 councils have opted to absorb the reduction in support; more than 90 will pass on the cut to poorer residents. It estimates that some 670,000 working age claimants, including 162,000 low income workers, will face an average bill of £156 a year. What is the Government’s estimate?
The Minister was kind enough to write yesterday, following our debate on 19 December. In that letter, she refers to the basis on which local council tax support funding is to be distributed, which is to be OBR forecasts for 2013-14. However, there is a phrase which states:
“An adjustment was made to mitigate very high budget pressure”.
Can the Minister explain what that adjustment is? We really are about to enter the age of poll tax mark 2.
On council reserves, the Government’s own policies are driving councils’ need for prudence by transferring risk to them. Council tax collection risks are made more difficult by reduced support for the poorest, and business rate collection risks are now to be shared with government. We are at the start of a new system which the Government say that, left to them, they would not wish to see reset until 2020. This is made worse by embedding the disproportionately high cuts that have been weighted against many of the poorer and most deprived areas in the funding baseline from 2013-14. Matters are not helped, of course by, the provisional settlement figures coming later than usual—the noble Lord, Lord Tope, made that point—when they were riddled with errors that necessitated corrections within days.
To date, councils have coped with the cuts by maximising efficiencies and redesigning services, shedding hundreds of thousands of jobs in the process. But, as the LGA and others point out, this will be impossible to do for ever. These cuts will reach, and are reaching, front-line services; there will no longer just be salami-slicing efficiencies, whole services will go. My noble friend Lady Smith made that point with some force. The pressures on councils will get worse, as the need for statutory services, particularly adult services, grows, and resources decline. Council tax freezes are all very well, but even Tory councils, as the noble Lord, Lord Shipley, said, are beginning to realise that they erode the tax base in real terms for subsequent years.
Of course, we hear the mantra that salvation for local councils lies in their own hands, because if they grow their business rate base they will retain half the increase—notwithstanding, of course, that the Government seem intent on applying some of the increase in the local share to reduce revenue support grant. If they build new homes, they will garner the new homes bonus. But as we debated when the Local Government Finance Bill was under consideration, not all councils have an equal ability to do this. Tight urban areas may simply not have the land to expand the business base, and the general squeezing of budgets, with the inevitable focus on statutory services, reduces discretionary spend on councils’ economic development services.
In any event, local councils are not totally masters of their own destiny in this regard. The Financial Times today carried an article about the tightening of capital rules for banks by the FSA, which could cause the scrapping of property developments outside London. There is not much that councillors can do about that.
There are, of course, some interesting messages in the recent report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth, where he espouses the benefits of unleashing the entrepreneurial spirit of local areas; we agree. However, government itself has to have a strategy for growth if this is to be meaningful.
There has been much discussion about the consequences of the settlement for local councils and for taxpayers—and also for the challenges facing councillors. The real victims, however, are not the institutions or even the elected members: they are the individuals and families who rely on the services that the councils provide. These are vital services which, in some cases, keep people alive, and which ensure that individuals can have a decent quality of life. They are services which give a meaning to community and a sense of belonging. We lose all this capacity at our peril.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, along with other noble Lords, I thank the noble Lord, Lord Smith, for generating this debate. It has not been very long since we had a previous discussion about the local government finance settlement just before Christmas, and here we are again. None the less, I also want to thank the noble Lord for the measured way in which he introduced the debate. He has a lot of common sense and experience, which comes out in the way he speaks.
I was asked, by the noble Baroness, Lady Armstrong, most particularly, about the delay in the provisional settlement. It was later than we would have wished and we appreciate that that has caused a great deal of late assessment. As the noble Baroness and others will know, the annual Autumn Statement was late this year, so we could not get out the provisional settlements any time before that was done. However, I reassure her that we are working to publish the final settlement as early as possible in February. We have made clear to other departments that local government needs all funding allocations—£150 million for the early intervention grant topslice, for example, and the public health grant that has now been announced—as soon as possible. In the interim, noble Lords will know that we have each year been receiving local authorities that have come to discuss their own settlements; no decisions have yet been made on what they have put forward, but they are in the process of being considered. As a department, we have not been sitting back just letting things happen; nor are we unaware of the difficulties that this has caused.
Sometimes, I think we look at this from different ends of the telescope, but I want to say that I appreciate that local government is in a changing situation. It is required to make major decisions as the financial position has moved us into having to reduce its grant. I do not want anybody to think that the department itself is sitting in luxury. It is not: we have lost nearly 30% of the grant that is given to local government, and if we do not have that, we cannot pass it on. We are feeling the pinch as well; the noble Baroness, Lady Armstrong, will know that there has been a huge reduction in the number of staff.
Councils account for a quarter of all public spending. This year, they will spend more than £114.5 billion. That is larger than the budget of the National Health Service, and twice the entire defence budget. It is also more than double the debt interest, so we are not talking about peanuts here. We are talking about a very substantial slice of the nation’s budget. It is vital that local authorities continue to play their part in tackling the inherited budget deficit. They have to make sensible savings and deliver value for money for the taxpayer.
I know that no noble Lord who has spoken will agree with the following statement but we believe that local government has been given a good deal in 2013-14. It is worth noting that it was exempt from further reductions in the Autumn Statement. We could have lost another 1%, which did not happen. The important protection that this provides will give local authorities time, I hope, to look at where they can change services and manage savings, bearing in mind that next year will probably not be any better.
This is the beginning of a new settlement. It is a fundamental change from the old ways of working. Councils will be expected to make changes, which I appreciate is not always easy. The accusation has been made that this budget or settlement is not fair but I disagree. We think that it is fair. Of course, because of the way in which the formula works, there are differences in certain areas. Northern councils have not come off worse than anyone else. We understand that some areas got less than they anticipated but the north-south split was not part of a formula. We have retained the four floor dampings and the protection that they offer most councils. This year, we have gone further and stretched the banded damping floors so that they give more weight to the councils that are most dependent. At the same time, the Government have introduced banded floors for fire and rescue services.
We also have restored the level of the relative resource amount to that for 2010-11 to help authorities with a low council tax base. We have introduced a safety net to provide additional protection where councils are likely to lose resources. Noble Lords will know that, between the top-up and tariffs, no one will be worse off than having 92.7%. There will be a safety net on the business rate to help provide that, which will help to ensure that service provision does not suffer as a result of volatility in the council’s business rates. The noble Lord, Lord Smith, referred to the reduction in the business rate and what would happen if there was a big drop because, say, a business went out of business. The answer is that the safety net would pick that up and there would be a within-year settlement. There would not be a big problem.
Next year, councils will host new financial incentives to increase their income. If they build more homes—we have heard a lot about the new homes bonus—they will benefit. There was a suggestion that the new homes bonus would be cut. The new homes bonus is as it was expected to be. There was to be topslicing next year but local authorities have asked that most of that new homes bonus should go into the settlement, which has happened. The new homes bonus is already contributing to the budget. It also is worth noting that the new homes bonus does the job it is meant to do. It pays for, and helps to pay for, the development of new homes. Empty homes also benefit from the new homes bonus. While it is not ring-fenced, it supports local authorities in providing infrastructure that will support homes.
There is also up to £1 billion in community infrastructure levy. I was rather taken aback to hear a noble Lord say that councils could not do what they want. The general power of competence is a very fundamental part of giving councils responsibility for all their own decisions and for what they can do. There is the benefit from the £2.4 billion Regional Growth Fund and the £770 million Growing Places Fund, so there are other sources of money coming to local councils.
The noble Lord, Lord Smith, acknowledged that councils will have to achieve savings and I acknowledge that they are doing so. The noble Lord, Lord Tope, asked me to say thank you to local government, which I have no hesitation in doing. As a former part of local government, I know and I appreciate what it does and I know that councils have an enormous amount to do in supporting their local communities. That is the view across the department and of our Ministers. We appreciate that that is so. If it was not so, we would not be passing any of the additional powers or responsibilities that we are to local government. I hope that will underline a little how the noble Lord, Lord Tope, and we feel about local government.
Returning to the noble Lord, Lord Smith, and others, he was gracious enough to accept that local government was going to have to achieve savings and everybody has known that. There has also been a huge amount of advice as to how those savings might come about and a great many local authorities are already following that. They are sharing chief executives, back-office services and contracts for open spaces and waste management, but not all of them are doing that. Those that are behind need to learn from those that are doing it. The Local Government Association—to give it its due—has some very powerful peer help for local authorities. Those that are not doing it and do not understand it need to ask for that help, which I know is there.
The noble Lord, Lord Smith, who made all the major points, also mentioned the collaboration between public bodies. Community budgets are great and the four whole-place budgets will now be extended out. They are demonstrating very clearly that where public bodies get together, they can pool their funding and work together to help individuals. Troubled Families is a good example of co-operative work where not everyone is tootling off, doing the same thing for the same family, but one person has responsibility. This is beginning to work and beginning not only to save money—that is not the only purpose of this—but to set those families on a road which will, we hope, lead them to jobs and their children into education, away from all those things that were holding them back.
Community budgets are not as specific as the whole-place budgets but they also demonstrate that you can bring public bodies together to manage their budgets better. When I was a leader of a council, you could not do that. I often said it was like being in a little kingdom with a wall around you. You could not share budgets so this is a great move forward.
The other thing that was brought up in particular was the business rate appeal. Room has been made within all the settlements to allow for appeals. There is headroom now—I think of about 8%—to settle these problems. The Local Government Association and the department have spent a long time agitating together to see if this could be done on a more individual basis, but it just is not possible because the number of outstanding appeals is not known. The support has been given and is there so I hope that that will be understood.
There was some concern about rural local authorities getting more than other authorities. In fact, rural authorities are a bit peeved as they feel that they are getting less than others. One needs a balanced understanding of who is getting what. The noble Lord, Lord Greaves, suggested that the shire district councils were worse off and said that Pendle, Hastings and Great Yarmouth councils could bid for an efficiency support grant. He will know that the efficiency support grant is allocated to seven councils so that their spending power is not reduced by more than 8.8%, which is the level for all local authorities. Anybody who has studied the figures will know perfectly well that there is a range here. Some local authorities do better than others as regards spending power but the relevant councils stood out as being ones that were very much losing out.
The retention of the business rate will, of course, have different effects in different parts of the country. The noble Lord, Lord Greaves, was right to point out that it will be easier to retain it in some places than in others. We will need to monitor how that works. However, local authorities have asked repeatedly to retain the business rate. Although they clearly cannot keep all of it, this is a good step in the right direction. As we have made clear, we hope to raise the 50% figure slightly as the financial situation improves. I make no promises in that regard but I hope that that will happen in due course.
A number of specific questions were asked, which I will need to look at to see whether there is anything further that we need to take on board. I wish to finish my speech by commenting on the council tax freeze. That issue is very important as it has meant that local taxpayers have been protected from large council tax increases. The noble Lord, Lord Shipley, said that it was up to councils to decide the level of council tax that they needed to levy and that they should be able to impose it. However, that was the old position and it caused a great deal of angst and upset. For that reason it was decided to limit council tax increases. Local councils can increase their tax this year by up to 2%. If they feel strongly that they need to go above that level, they have to put their case to their local residents and ask them whether they are happy for that to be done. Therefore, rather than just being faced with a rise in council tax, residents will be asked whether they think that it is appropriate. That seems to me not an unfair way to proceed.
I will draw my remarks to a close before I run out of breath and can no longer speak. I thank all noble Lords who have contributed to this interesting debate, in which some looked at this issue through a different end of the telescope from me. However, that does not surprise me.
Lord Smith of Leigh
I thank all noble Lords for their contributions to this debate, particularly the two who were so keen to contribute that they found the stamina to participate in two debates today.
The general theme that emerged in the debate concerned what the basis of funding for local authorities should be and whether it should be based on the ability to raise revenue or on need and deprivation. We shall need to come back to that theme. Noble Lords talked about the complexities and difficulties of the new system. A number of noble Lords, including myself, mentioned the problems associated with valuation appeals and the impact that that might well have in some areas. The noble Lord, Lord Tope, mentioned that issue and I agree with his comments in that regard. The provision will cause difficulties in lots of areas and London may be worst affected.
My noble friend Lord Beecham concentrated on needs. Clearly, coming from the north-east and Newcastle, that is something that he understands. None of us wants to be in an authority that is dependent and has high deprivation. We want to work to get rid of deprivation but we will not do so without support.
The interesting part of the contribution from my noble friend Lady Smith of Basildon was the Basildon letter. Presumably that letter is going to local authorities across the country and is obviously making many people worry about their jobs. It is a very difficult matter. I have been undertaking an exercise in my authority where we have been talking to front-line staff. It is not easy when you know that, as you explain the issues in local government, particularly funding, some of the people you are talking to may not be there come 1 April.
As usual, the contribution of the noble Lord, Lord Greaves, was interesting. When he talked about his seven authorities, it illustrated his point about how settlements these days seem to be skewed, as it were, towards success. Authorities that have the ability to raise business rates or get new homes or whatever will benefit, whereas areas such as his own in Pendle will have much more difficulty and will suffer. He illustrated that very well. My noble friend Lady Armstrong talked about complexity and made the point that it is not just local authorities that are impacted by the local authority settlement but the voluntary sector, which relies on local authority funding. Obviously, if local authorities are taking cuts, there will be cuts in the voluntary sector and, if we get settlements late, they will get them late too.
There was an interesting contribution from the noble Lord, Lord Shipley. He talked about fairness and raised the issue of council tax. If I understood him correctly, the problem with council tax averages—as the noble Lord, Lord Greaves, said—is that it all depends on the banding. If an authority has a huge proportion of band A properties, then its average is much lower than other areas, so maybe raising bands would be quite difficult. My authority rejected the less than generous offer from the Secretary of State to freeze council tax this year. It would have cost about £1.5 million to do it this year and would have deferred the cost into next year. I admired the courage of the noble Lord, Lord Shipley, when he suggested a referendum on increasing the council tax. I proposed in Greater Manchester that we had a congestion charge, which went to a referendum. I still have the scars, so I am not too keen on that.
My noble friend Lady Donaghy took a very brave line when she tried to take a Conservative view of what might have been said, given the absence of contributions from that side. She then spoke about reserves and at the end tried to come up with a song. Whatever song it is, I am sure it will be the blues.
My noble friend from the Front Bench, Lord McKenzie of Luton, obviously defended his own authority, quite rightly. However, I thought there was an anomaly there that I had to mention. With his experience and expertise he raised issues which we had rehearsed during the passage of the Local Government Bill and which we need to think about. He stressed—as many of us did—that we are talking not just about the impact on institutions such as councils, which is mostly ongoing, but about the impact that these cuts will have on individuals and communities.
Finally, the Minister, in her usual charming and informed response, replied as best she could about the issues raised. She talked about the role and size of local authorities. We agree that, if there needs to be a reduction in public spending, part of it will have to come from local authorities, but it should not be disproportionate. That is the issue. We will obviously disagree about whether it is a good deal or not. The good news is that we are exempted from the Autumn Statement this year, although we may not be in future. The Minister tried to explain the concept of fairness by saying that she had been attacked by all sides. Of the three points that she raised, she probably accepted that we will have more collaboration and that we will monitor what is happening in the settlement, so perhaps two out of three is not bad. It is a better strike rate than most strikers in the Premier League, other than van Persie.