Lord Beecham
To move that this House takes note of the Local Government Finance Settlement and its implications for the future of local government.
Lord Beecham (Lab)
My Lords, I look forward to hearing the maiden speeches of the right reverend Prelate the Bishop of Southwark and the noble Baroness, Lady Pinnock, of Kirklees in Yorkshire. They, and perhaps others of your Lordships’ House, may recall a well known broadcaster from Yorkshire—one Wilfred Pickles, whose catchphrase was, “Give him the money, Mabel”. The local government world would be surprised if the Secretary of State proved to be related, though the Chancellor might be forgiven for seeing in him the very reincarnation of his namesake. This after all was the first Minister across the door of Number 11 in 2010, offering up to the Treasury the largest cuts of any government department.
Year after year the story has been the same: injury compounded by the insult of meaningless consultations and a last-minute announcement of the annual settlement, this year on the very last day before the Recess. I have had the privilege of serving as a member of Newcastle City Council since May 1967 and I declare my interests in that capacity and as a vice-president of the Local Government Association. I have lived through good times, difficult times, and bad times in local government, but I have never known a time when local government and local democracy were in such a desperate plight as they now are.
Even during the Thatcher era, Secretaries of State such as the noble Lords, Lord Heseltine and Lord Baker, and Lord Jenkin displayed a sympathy with local authorities and understanding of the importance in their role. Such, sadly, is not the case today. What is in some ways worse is the propensity of the Secretary of State not only to promote his obsessions—weekly bin collections or car parking charges, for example—at the same time as he presides over massive cuts, but also to suggest that the damage is not serious, that councils in general are sitting on vast reserves, or that the 50 helpful hints for savings he jotted down on the back of an envelope could avoid difficulty.
The reality, as the Secretary of State must well know, is very different. Capital reserves cannot be used for revenue purposes, revenue reserves must be available to meet contingencies as they arise or be held on a prudential basis, and of course, once spent, are no longer available. Councils of all political colours are in dire difficulties even after making significant efficiency savings. He must also know of the claims of the Under-Secretary of State, Mr Hopkins. Like Mr Pickles, he is a former leader of Bradford Council, though unfortunately both cast from a very different mould from that of the noble Baroness, Lady Eaton, from whom we will hear later, who was also a leader of that council. Mr Hopkins, after all, stated that,
“the settlement leaves councils with considerable spending power”.
That claim is grossly misleading. In the first place, the LGA point out that real-terms cuts since 2010 will reach 40% by the end of 2015-16. In fairness, the National Audit Office figure is a little lower at 37%—but there is, of course, more still to come.
Secondly, the Government's claims about spending power—an artificial construct designed to conceal the reality of what is happening—are utterly misleading. The Government claim a reduction in spending power of 1.8%. But that includes council tax income and the NHS element of the better care fund, which in fairness is a good policy, but which represents money that is not the councils’ money to spend. If those two elements are taken out, the cut becomes 8.8%, and this rises to 11.8% if ring-fenced funding and social care cost new burdens are taken into account, making a like-for-like comparison cut not of 1.8% but 11.8% in all.
This does not, of course, reflect equal misery all round. Hackney’s spending power, a deeply deprived inner London borough, drops by £199.50 per head, and Birmingham’s by £156.77, but Surrey’s goes up by £56.42—and even then, the Conservative leader of Surrey complains that it is not enough. Wokingham, which is frequently referred to by Ministers as a comparator with Newcastle, also gets an increase of just under £50 per head.
The National Audit Office is critical of the Government’s use of spending power, which it describes as,
“an indicator that combines government funding with council tax income”,
and which does not give,
“a measure of the scale of the financial challenge facing local authorities over time”.
Local auditors moreover, the NAO reports, say that 52% of single-tier and county councils,
“are not well placed to deliver their medium-term financial strategies”.
Worryingly, the NAO asserts that:
“The Department has a limited understanding of the financial sustainability of local authorities and the extent to which they may be at risk of financial failure”,
and, moreover,
“does not monitor the impact of funding reductions in a co-ordinated way”.
Of course it, and we, no longer have the benefit of the Audit Commission’s views of these matters since it was abolished in a fit of Pickles pique.
On top of this, there are instances of sleight of hand in the published figures. A £200 million cut in the grant to education authorities for central services for schools is not reflected in the declared spending power, and the £70 million New Homes Bonus going to the Greater London Authority is still included in the spending power figures for the London boroughs, while the Government’s better care fund is not all spent on social care or other services commissioned by local councils.
A number of areas of general application are worrying. In relation to business rates, councils have made a provision of £660 million for back-dated appeal losses, representing local government’s 50% share of the cost, as decreed by the Government, who received all the money in the first place but are meeting only half the subsequent bill. If anything, this provision underlines the need for a prudent level of reserves.
Council tax support sees a £1 billion cut, which is certainly going to make life even more difficult for low-income and, frequently, working households, and the councils which will have to attempt to recover unpaid council tax. Moreover, the Government are cutting local welfare assistance, which partially cushioned the blow of the council tax support cut and simply absorbed it into the funding assessment, which will therefore be at the expense of other services. The LGA has rightly sought the restoration of this funding.
What does all this look like on the ground? Twelve north-east councils stand to lose £240 million in spending power—that artificial measure—next year, on top of a 40% cut in grant thus far; and that is happening in the region with the highest unemployment in the UK, and where the council tax yield is much less than in the more prosperous areas. By 2017-18 Newcastle’s budget will have fallen from £280 million in 2011-12 to £207 million, with a reduction of 48% in government funding.
The pattern is similar in all the metropolitan areas, many of the inner London authorities, and many other places such as seaside towns. However, breaking down the figures in service terms illustrates the problems more vividly. Children’s services, for example, have seen the number of looked-after children increase by 11% in five years, but by 33% in the north-east; yet government funding for core children’s services has suffered an estimated cut of £2 billion, or about 50%, including a cut of 17% or £0.5 billion for 2015-16 alone. Local welfare assistance schemes, a lifeline to the most vulnerable, have been scrapped by the Department for Work and Pensions, and £129 million is now included in the overall settlement but is not ring-fenced and has to be seen in the context of the 11.8% cut overall.
Sure Start everywhere faces cutbacks, although in Newcastle we are managing to maintain provision in the most deprived areas by a reconfiguration of the service. Yet the pressures are palpable across a range of services, from adult social care to the state of the streets and open spaces, from threatened cuts to policing and fire services, and from the provision of library services—although we in Newcastle have managed to retain a reduced service in all but one of those threatened with closure by working with residents’ groups and other partners—to a much reduced youth service. The council faces a cut of £26.7 million in government funding next year as we struggle to meet the rising costs of demographic change, particularly in the light of an increasing number of elderly residents, and huge pressures on children’s services.
The voluntary sector is also under enormous strain—I declare my interest as president of Age UK Newcastle—and unable to meet the increasing demands on it. We are, in 2015, a city with eight food banks and seven low-cost food centres, by no means the only area with such a necessary provision. There are also 5,376 house -holds paying the bedroom tax, which is costing them and the city’s economy £3.75 million this year. Some of these cuts will lead to greater expenditure elsewhere—notably but not exclusively in the National Health Service, as well as in pressures on other services, which is reflected, for example, in a failure to equip youngsters to participate in the local economy. That also impinges on the general welfare of the area and the success or otherwise of local business—as well as, perhaps, on the criminal and family justice systems.
What we desperately need is a fair system of distributing financial support for local government based not on spending power but on spending need, accompanied by the revival of Total Place, or place-based budgeting as it appears to be known now. It is a concept developed by the Local Government Association, adopted by the previous Government with the full support of the Treasury and the Department for Communities and Local Government at that time, but disappointingly not necessarily taken on board by other departments. In any case, it has withered on the vine over the past few years. Under this approach, one would look at all relevant public spending in an area, at the appropriate local level, thereby enabling both efficiency savings and reduced overheads, but essentially allowing a more integrated and effective approach to issues and problems that necessarily cross departmental and service boundaries —whether in Whitehall or the local town hall.
The Motion refers to the settlement,
“and the implications for the future of local government”.
Thomas Hobbes famously described the life of man as “nasty, brutish and short”—epithets which some might be tempted to apply to me from time to time. Unless there is a change of course, I fear that the future of local government is destined to be depicted in those sombre Hobbesian terms.
I hope that the Government will, in their final settlement announcement in February, reflect the widespread concerns expressed across the whole of local government, and of all political colours, as well as by independent bodies, those who deliver services and those who assess their efficiency, and that a more realistic appraisal of what is happening up and down the country will result. I do not have any great confidence about that because the department is not representing, as it were, local government in Whitehall but is merely an instrument for cutting services. That is in part, apparently, in the pursuit of an ideological approach of down-sizing the state in general and local government in particular. That does no service for the people who need our help—whether they be deprived individuals in deprived communities or businesses that need a thriving local economy and investment in skills and infrastructure. The prospect is indeed gloomy. It is not too late to begin to reverse it and, in particular, to redress the grotesque inequalities perpetrated by this Government in their distribution of cuts. We are living in difficult times obviously, but the burden should not be borne by those who are least able to bear it. That has been the hallmark of the Government’s approach to funding local government in the past five years, and it is high time for a change.
Lord Tope (LD)
My Lords, it is courtesy in your Lordships’ House to say what a pleasure it is to follow the previous speaker. I have heard pretty well all the speeches that the noble Lord has made on the local government finance settlement for at least the last 25 years. I hope your Lordships will understand that my pleasure in following him has been just a little diminished over that time, perhaps matched by the predictability of what he says each time—which, I am bound to say, is not that different, regardless of who is in government.
I have one particular point of agreement with the noble Lord, which is in regard to his comments on whole-place, total-place or community budgeting or—as he rightly says—whatever the current title happens to be. It was introduced by the last Government as total-place and fairly enthusiastically embraced by my coalition Government, albeit with a change of name to community budgeting—but I share his disappointment at the very considerable lack of progress at a time when it is actually needed even more than it was when it was first introduced. That is down to a lack of leadership—local, perhaps, but most certainly national and at departmental level. I hope that the Minister will be able to comment on that.
It will be my pleasure to hear today’s two maiden speeches: one from the right reverend Prelate, who I could possibly describe as my local bishop, and the other from my noble friend Lady Pinnock who is also a very long-time local government friend of mine. We all look forward to that. I declare my interests as a vice-president of the Local Government Association and as a signed-up member of the local government party for a very long time. I thank the LGA, which has gone to great lengths with its excellent briefings that will, I am sure, inform the debate. However, I am one of only two London local government Peers speaking in this debate; the other is the noble Lord, Lord True. I acknowledge that the Minister has a distinguished record in London local government, but I felt that he might feel a little inhibited in replying to the debate solely on behalf of London.
In the three minutes remaining to me, I will concentrate on the six points that the London councils have raised, which are probably shared across local government to a greater or lesser extent and with different emphasis. The first is the question of local welfare assistance and the funding for it, to which the noble Lord, Lord Beecham, referred. We strongly support the wish that this should be additional funding, not included—as it is—in the settlement. The Liberal Democrat Communities and Local Government Committee, which I co-chair, has actually written in response to the consultation to that effect.
London Councils calls attention to the lack of transparency in the proposals and calls on the Government to publish a full breakdown of the local government resource departmental expenditure limits alongside the settlement. We are all used to year after year of completely different figures coming from the department and from local government. Frankly, it does not matter who is in government: there is always that difference and it is almost impossible to match the two. Is it really beyond the wit of government and local government to agree on the figures, even if they do not agree on the outcome?
My next point refers to the revenue spending power calculation. I am a little surprised that the noble Lord, Lord Beecham, made so much reference to it because it is, frankly, largely discredited within local government. It certainly means different things to different people in different places. So, again, the call from London Councils is that, if we are to continue to use that reference, local government and central government should try and get together with a shared definition of what “spending power” means.
Business rates, and the business rates retention scheme, are important issues in London and indeed everywhere. We welcome the return of some of that rate to local government. I believe that it was the intention, certainly in the Department for Communities and Local Government, that that share and proportion should increase over years, and I hope that the Minister will be able to tell us how that increase is happening and what the current Government, at least, envisage will be the future for the return of the business rate to local government in greater and greater proportions until we reach 100%. I would also add the return to local government of the power to actually determine the business rate.
Lastly, but possibly most importantly, is what London Councils calls the disproportionate impact of spending cuts on London local government. By 2020, this looks like being no less than 70%—the impact of which is considerable. We are to discuss the future of local government: I hope that much of this debate will actually be about the future of local government. Unless there is a very radical change in the relationship between local and central government, with more power, responsibility and power to raise funding devolved to local government, I do not think that local government, in any meaningful sense, has a future.
The Lord Bishop of Portsmouth
My Lords, I welcome this debate on the implications and challenges of the local government settlement. On these Benches, and indeed in the whole House, we look forward to the maiden speeches of the noble Baroness, Lady Pinnock, and of my colleague and friend, the right reverend Prelate the Bishop of Southwark. I look forward to that for many reasons, not least that he was a senior curate in the diocese that I now serve. He is the most recent in this House of a long line of able clergy nurtured and grown in the Diocese of Portsmouth.
I will focus on local welfare provision, which is a vital service to people in crisis, many of whom are very vulnerable. A single mother in Portsmouth, escaping domestic violence, lived for a while in overcrowded conditions with her mother. She successfully applied for her own accommodation but it was unfurnished, so she and her children shared a sofa-bed and lived on sandwiches and takeaways. The local council, through the Government’s allocation for local welfare provision, awarded her money for beds, a cooker and a fridge freezer. That sort of situation is repeated many times in my see city of Portsmouth and in other places. A modest award of a few hundred pounds provides the essentials for the decent nourishment and reasonable comfort of a mother and children.
I want to place on record my relief that the settlement announced in mid-December includes notional provision for the continuation of local welfare provision. I express both relief and gratitude but there are two caveats—two disappointments. First, the allocated amount of £129.6 million is substantially lower than in the past two settlements. Secondly, there is no obligation on councils to use the funding for that purpose; even the reduced allocation is not ring-fenced. It is possible to make a strong case for every item of local authority expenditure. However, this emergency local welfare provision surely should be an exceptional case. First, this is emergency help to very vulnerable people in crisis situations. Secondly, we are all aware that the tightening impact of welfare reform on mainstream benefits has increased the need for, and importance of, an effective safety net. Thirdly, the heavily reduced allocations for local welfare provision since 2010-11 means that in my city of Portsmouth, for instance, the amount spent since then has declined from £900,000 to £440,000, just over half. My anxiety is less about that particular decline and more about the considerable variation in local authority practice around the country.
Only ring-fenced allocations will commit the welcome, although reduced, resources to guarantee this crisis provision continuing. A relatively small amount of non-discretionary funding would not significantly restrict the local government autonomy which many of us seek to preserve. Alongside the moral case is an economic rationale. Portsmouth City Council’s review of the provision concluded that this modest expenditure saved substantial costs elsewhere. The loss of the provision increases demand for mental health services, for children’s social care, for temporary accommodation provision and debt advice. Preventing a tenancy breakdown, for instance, saves the authority nearly £7,000 per eviction.
On moral, economic and practical grounds, I make a modest request about a small but significant matter in this settlement and invite the Government, if they cannot maintain the level of local welfare allocation, at least to ring-fence it and ensure that those in crisis need are helped.
Lord True (Con)
My Lords, I declare an interest as leader of a London borough. I thank the noble Lord, Lord Beecham, for initiating this debate and I, too, very much look forward to the maiden speeches that we will hear.
During this short debate, Britain will borrow over £25 million more. To say that the public sector must go on making savings should be blindingly obvious and, amid the many strictures that we heard from the noble Lord opposite, I heard no promise from that Front Bench to reverse the downward squeeze on spending. Doubtless the noble Lord, Lord McKenzie of Luton, will correct me if I am wrong by laying out Labour’s plans to increase local government spending.
Gaps cannot be filled by new taxes, such as the vindictive homes tax that Mr Miliband seems to have picked up off the back of a rather tatty old lorry that has been abandoned by his penfriend, Dr Vince Cable. I agree with the noble Lord, Lord Mandelson: it is unreasonable to ask Londoners to pay ever more on the nominal value of homes, many of them heavily mortgaged. The average terraced house in Richmond costs £944,000 and the average semi costs £1.2 million. Already, people buying these homes face higher levels of stamp duty set on property over £937,000 in the Chancellor's otherwise very welcome stamp duty reform. These are not super-rich people; they are average people who have often made more than average sacrifices. I submit that they cannot bear more.
My right honourable friend Mr Osborne has done a fine job in handling the economy. He is also to be thanked for supporting the freezing of council tax, which is of enormous value to millions of families. Richmond has frozen council tax since 2010 and we intend to freeze again this year. That reflects greater efficiency, but the Government have made a sustained contribution in freeze grant and deserve recognition.
That is the background to tough but necessary decisions in this settlement. Yes, there is a hard squeeze on, but even in the Newcastle of the noble Lord, Lord Beecham, the online budget report tells me that it plans to spend another £5 million next year on buying new council vehicles and a further £5 million on upgrading IT. It is not enough to peddle on the doorsteps that, “It’s all the fault of Mr Pickles”. We all have to face hard challenges, and all local authority leaders have. We have to do even more to assess priorities—the right reverend Prelate set down important challenges—to pool costs and to share services with others. We must do that.
However, I believe in the fundamental value of local choice. Local government deserves more respect than it is sometimes given. If other parts of the public sector had been as good at cutting costs as councils, we would be far better off. Frankly, in my submission, a team of good local government finance directors, paid far less than top NHS bosses, could cut a swathe through the waste and inefficiency that is protected in the NHS while fully safeguarding services. The Secretary of State loves having a pop at local authority chief executives. I do not actually think that helps very much, but I hope that further thought will be given to the details of the new plan to cap public sector redundancies. It will not help with the major restructuring at the top that will often be needed. I hope that can be reconsidered.
I conclude with three requests. The first is about spending power. Richmond is given what is described as a 1.7% increase but, as others have said, this is nonsense because it includes pre-existing health money that is not available for councils to use, and the spending power measure ought to be quietly dropped. Our real reduction in grant and business rates is nearly 7%. Secondly, can local authorities have the power to set planning fees, albeit on a cost-recovery basis only? Currently my taxpayers subsidise developers to the tune of £1 million per year, or 1% on council tax. I wish that that could be looked at.
Thirdly, I point to an emerging problem in education that already affects us, but will affect others. Our DSG grant does not meet the needs of special needs pupils, and we will overspend by more than £1 million. We have England’s best primary school results. Given that, it was surprising for my chief executive and director of education to be summoned by a DfE Minister, Mr Laws, to be told that he was concerned about Richmond’s performance. I would like my Ministers to have better things to do. I urge my noble friends in the Department for Education and Skills to consider a more flexible and responsive method of calculating the DSG high-needs block, including an element of pupil-led funding.
These requests show that we will all have practical issues to raise within the funding formulae. However, it is an inescapable reality that savings must continue to be made. The Government are right, and we must act accordingly.
Baroness Armstrong of Hill Top (Lab)
My Lords, it is a great pleasure to join in this debate. I congratulate my noble and very good friend Lord Beecham, who is from a neighbouring authority. When my noble friend was leader of the old AMA, and then of the new LGA, I was Local Government Minister during the first Labour term from 1997. We did not always agree, but we always had a good relationship. His absolute passion for local government is well known and acknowledged in this House. It is significant that so many Members of this House have kept that commitment to local government, and in that light I really look forward to the maiden speeches that will follow shortly.
As I say, I was Local Government Minister for four years, so I know about formulas and how they are tweaked. I know the sort of information that Ministers get, making clear the potential for fundraising in each area, what one tweak will do to that and all the rest. My father, who was also involved in local government in the old Department of the Environment, used to say that only three people in the country understand this formula and they all disagree. There is a lot in that too.
Essentially, this is about the fact that in this country too much money is held at the centre. Some of that has historically been for quite good reasons, or for reasons that we have always defended but actually need to have the bravery to think about. The reason why so much has been controlled centrally is that the Government have priorities. They want to make sure that those priorities are reflected, and they are committed to sharing money out around the country in order to ensure that those priorities are met. That makes the main issue how the money is divided up to get fairness. Fairness has to reflect need, and I suggest that that is the problem we are discussing today. How do you achieve such fairness with what will be a reducing amount of money?
I want briefly to talk about the authority I live in and where I served on the county council for a brief period, shortly before I became one of its Members of Parliament: Durham, which is now a large unitary authority. Since 2011, Durham has seen its money from central government reduce by £137 million, which is not easy to deal with. By 2018-19, the Red Book states that the reduction will be £250 million, which is not an insignificant amount. The area is hugely rural, with the lowest rate of car ownership in the country, some of the highest unemployment rates and, of course, one of the largest ageing populations because many young people go elsewhere. The welfare assistance that the right reverend Prelate the Bishop of Portsmouth talked about is due to be reduced in Durham by £1.9 million by the end of March this year. Actually, none of us can find it in the allocation; we have been told that it is there but no one can find it, including the chief finance officer.
I simply challenge how the Government acknowledge need and how an authority like Durham can see such large reductions whereas counties like Surrey, with nothing like the level of need experienced in Durham, have seen such a large increase in the money that they are getting. We all have different views of fairness but I do not know of any external commentator who is saying that the Government have put in place a system of fair distribution. It means that inequalities will increase and, as we discussed in the House yesterday, consequences will arise from that, particularly in different parts of the country.
What about the future? I am clear that we need much more devolution, but it must recognise need. We need much more public service reform but that, too, has to be done on the basis of being fair in the end. In the town where I live at the foot of the north Pennines, which has a population of around 12,000 people, we have just lost our only supermarket and, as a result, the post office and the petrol station. I do not believe that anyone living in a town of that size in the south would be able to say that. This is what unfairness brings, and the Government have a responsibility to pay heed.
Baroness Pinnock (LD) (Maiden Speech)
My Lords, I am fortunate indeed to have been given the great privilege and wonderful opportunity of joining your Lordships’ House. Over the past few weeks, I have been listening and observing in this historic Chamber, and I am left wondering how my background and experience can add to the wealth of knowledge here.
Some 30 years ago, with a young family and a career in teaching, I was motivated to become involved in saving our local school from closure. The success of this campaign gave me a taste for being where the action is. After 28 years’ continuous service to my town of Cleckheaton in West Yorkshire as its elected councillor, I can still say that being able to serve the community where I live is a role I love.
My supporters, my noble friends Lord Shutt of Greetland and Lady Bakewell of Hardington Mandeville, have likewise devoted many years of distinguished service to their local communities and local democracy. I thank them for their patient help and support while I make many errors in your Lordships’ House.
When I first entered your Lordships’ House, I was overwhelmed by the grandeur of the buildings and the ease with which I got lost. I had nothing to fear as the doorkeepers, attendants and indeed all members of staff in all parts of the House have been unstinting in their time in helping me learn both my way around the House and the protocols. I thank them for that.
Kirklees Council, of which I was leader for six years, serves over 400,000 people in West Yorkshire, with the Victorian woollen towns of Huddersfield and Dewsbury at its heart, but including my own town of Cleckheaton as well as large rural areas best illustrated as the setting for the television series, “Last of the Summer Wine”. Noble Lords may remember that it was a sitcom about a group of elderly rabble-rousers, including a man called Clegg—something with which I am sure many on these Benches can empathise.
The finances of local councils have been complained about in each of those 28 years, and this year is no different. I can tell noble Lords about the impact on services for local people in Kirklees—for let us not make the mistake of presuming that reductions in funding of this severity will not have an impact on services provided.
One thing I learnt early on as a councillor is that it is virtually impossible to compare funding year on year, simply because of the changes that take place to different elements of the central government grant. The better care fund, the transfer of the public health function and the transfer of the council tax benefit scheme have added around £75 million to Kirklees’s finances—with, of course, the greater responsibilities that go with that. On a national scale, these significant transfers mask what has happened to funding via the revenue support grant.
In Kirklees, a total of £152 million of spending on services is being taken out of the budget between 2011 and 2018. Obviously, with schools’ budgets being ring-fenced, and my council rightly protecting as far as possible services to vulnerable adults and children, the cuts fall heavily on the other services on which people rely. The current Kirklees proposals to meet this budget deficit include a 15% reduction in spending on services for vulnerable adults; and, despite rising numbers, as a third of the council's controllable budget is spent on vulnerable adults, this expenditure has also inevitably had to be reduced.
Another proposal is to reduce the number of fully funded libraries from 26 to two, and to reduce spending on parks and open spaces by 30%, with the result that some recreation areas will not have their grass cut at all. Road maintenance has already been reduced by 15%, with the inevitable consequences for road users. Sponsorship of concerts and music education is being removed altogether. So local government in Kirklees is facing challenging times. This is confirmed by a report by the National Audit Office on the financial sustainability of local authorities, which states that local government’s spending power has been reduced by 25% over the life of this Parliament.
Our democratic reaction to this immense change could be hand-wringing. That may be satisfying but it will not get us very far. Those of us committed to providing essential services must think outside the box. As my noble friend Lord Tope said, one thing we need to do is seriously loosen the ties with central government, find new ways to raise local finances, and challenge central government to devolve responsibility for services such as Jobcentre Plus and community health services. If those measures are combined with greater accountability, our councils may—just—be able to survive the current financial desert and start to bring new vitality and involvement in local democracy once more.
Lord Whitty (Lab)
My Lords, I very much welcome the noble Baroness to this House. Everybody in the House will appreciate her speech, her passion for local government and for her local community and the problems that are faced there. In her speech she combined a lightness of touch with very serious content. The House will appreciate that and the other contributions she will make. Of course, she is from Kirklees, which used to regard itself as the greenest council in the country. I had the privilege of serving on the board of the Environment Agency with two former leaders of that council—one Labour, Sir John Harman, and one Tory, Robert Light. Now the noble Baroness is joining me, I have the full Kirklees set. I think her presence will be appreciated by the whole House.
My positioning between two maiden speeches does not in practice mean that I need to be non-controversial. Indeed, that is the end of my consensual stuff. Like my noble friend Lord Beecham, I am profoundly despondent about the prospects for local government as a result of the strategy being pursued by George Osborne and Eric Pickles. Their strategy seems to show—not just in this year’s settlement but in what they have done already and what they intend for the next five years—that they intend to ensure that the bulk of the cuts in public expenditure and a disproportionate amount of the costs of austerity will fall on local authorities and thence in practice on those who depend on their services. Within the diminishing total central support for local government, there is a deplorable—and, I would say, systematic—favouring of better-off areas over more deprived areas. If the Government, whoever they are after the next election, blindly stick to this strategy for another five years, contrary to all the talk about localism and devolution, we will have to adapt to a much diminished role of local authorities in our national life. That would be extremely unfortunate.
My noble friend Lord Beecham has spelt out what this year’s cuts actually mean. I agree with the noble Lord, Lord Tope, that the definition needs pinning down, but the Local Government Association’s view is that a 1.8% cut actually amounts to an 11.8% cut in things that the local authorities themselves can control. Whatever the precise statistics, it is clear from next year’s figures that there will be very substantial cuts in services—in schools, police, fire and, as the right reverend Prelate said, local welfare assistance. Spending on public health is being frozen and, in housing, the top-slicing of the new homes bonus effectively means that there is a cost to urban authorities to benefit the shires. If we look at the long-term effect of cuts in support over the past five years, by the end of next year there will have been a 40% cut since the Government came to power, and that is intended to continue. That contrasts with slightly over a 1% cut of total government expenditure. It is therefore clear that the pain is concentrated on English local authorities and the poorer element within them.
The distribution of the cuts can be seen as a north/south divide but that is only one part of the equation; it is also true within each category of local authority. In London, Hackney has a cut of £200 per head; in Richmond the noble Lord, Lord True, has done rather well with an increase of £37 per head. Among the urban districts, Barrow has a cut of 6.4% and Cambridge has an increase of 2.2%. Among the rural districts, West Somerset has a cut of 5.9% and Horsham an increase of 2.9%. Even among shire counties, which are by and large favoured, Northumberland has a cut of 1.7% and Surrey an increase of 3.1%. That is a shift by anybody’s definition—this embedded regression and a systematic transfer from the poorer to the richer areas.
The right reverend Prelate who is about to give the next maiden speech is the Bishop for an area I lived in for most of my life. Although I no longer live in Southwark, I am still Lord Whitty of Camberwell, so I hope he might be able to elucidate for me what was always a puzzling piece of scripture:
“For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath”.
That does seem to be Eric Pickles’s approach to local government finance.
If we continue to go down this road, we will be in very serious difficulty. The role of local authorities in our society will inevitably diminish. We need a constructive new Government who will engage in encouraging co-operation between local authorities, in city deals or whatever, allow local authorities to raise their own taxes in many respects, end ring fencing and predetermining expenditure, allow local authorities to borrow in housing and infrastructure and accept that there will be differences in priorities and outcomes between authorities. We need to give local authorities power, which is at present tightly restrained by Whitehall. The next Government, in contradistinction to this, need to create a properly financed and truly decentralised state.
The Lord Bishop of Southwark (Maiden Speech)
My Lords, I address your Lordships’ House on this first occasion with some trepidation. As I was advised not to drift into preaching mode, I will resist the temptation to expound on the interesting passage from scripture that the noble Lord has just quoted.
As a student of history, I am conscious of the dignity and importance of this House in the life of our nation, and I am acutely aware of the privilege of sharing in your Lordships’ deliberations. Throughout my life I have been inspired by the model of service found in the life of Jesus Christ, and I am humbled when I reflect on where that service has led me—not least, now, to your Lordships’ House. I will seek to serve to the best of my ability, using the gifts that God has given me.
I am most grateful for the welcome I have received from noble Lords, not least in the course of this debate, and in particular for the kindness of the members of staff who have helped me by way of induction, as well as assisting me in navigating the labyrinthine corridors of the Palace. One phrase that I have often been glad to hear is, “Head towards the river”—not, I trust, because there is any hope that the new prelate might jump in. Rather, I take great consolation that, whenever noble Lords take their libations on the terrace, they gaze across the river and into the diocese that I have the joy of serving as bishop.
The diocese of Southwark, with the notable exception of the home of the most Reverend Primate the Archbishop of Canterbury, comprises all that part of London to the south of the river, from Kingston upon Thames and Richmond in the west through central London to well beyond the Thames Barrier at Woolwich. The fast-flowing northern boundary of the diocese is rich with the history of this great city. The diocese is of course more than that, extending down through Croydon into east Surrey, well beyond the M25.
It is a diocese of some 317 square miles, with some 2.7 million people served by nearly 300 parishes and some 700 clergy and 450 lay ministers. Many thousands of young people are educated in more than 100 church schools. Our parish churches reflect the huge diversity of the capital as they are enlivened by Christian witness from every part of the world. Our communities include some of the richest in London and some of the poorest, and range from the inner city to the rural. It is a world in a diocese with all the challenges and opportunities that arise in very diverse communities. I believe that our city is greatly enriched by the diversity that immigration brings, and I look forward to playing a part in debates on such issues. The diocese is further enriched by its companion links with the church in Zimbabwe, in which I also take a strong interest, as well as in the affairs of the Holy Land and the church in Syria.
There are 16 local authorities and London boroughs in the diocese, which will see cuts of up to 15.5% in their funding as a result of the settlement that we are debating. This is in common with much of the rest of the country, and I note this with much regret. It is increasingly difficult to see how these cuts can be made effectively, given the huge savings that have already been visited upon local services.
I am acutely aware of the experience of a charity that is important to the life of my diocese and of which I have the honour of being president. Welcare, founded some 120 years ago by Edith Davidson and her husband Randall, who went on to become Archbishop of Canterbury, has always sought to work in partnership with churches, community groups and other voluntary agencies to support families and young people who are at risk. Welcare receives ongoing funding support from a variety of sources, including the diocese and many of our parishes. Since 2011, though, it has seen income from local authorities fall from £1.5 million to £500,000 and, as a consequence, much excellent work and the expertise of trained workers has disappeared, putting great pressure on a falling number of willing volunteers. This has meant that over the same period the number of families that the charity has been able to support has fallen from 5,400 to 1,050. By any reckoning this is a matter of grave concern, particularly as there is no evidence to suggest that the need is decreasing.
Indeed, the charity heard only yesterday that one local authority would continue to fund a service for a further year but without any increase in funding. So Welcare is expected to deliver the service at the same level of funding as was first awarded four years ago. This means absorbing all increases in costs, which amounts to providing a subsidy for the local authority. This is a common story in the voluntary sector, which continues to address very real need. The remarkable resources of voluntary endeavour are finite and it is morally wrong to push them to breaking point.
My concern is that, as yet, we do not pay enough attention to the very human needs that lie behind our financial decisions. In strategic terms, it would be better to continue to encourage early intervention and preventative work rather than storing up problems further down the road. That makes fiscal sense to me. However, far more importantly, it attends to another imperative that at times it is easy to lose sight of in financial discussions: namely, that of ensuring human flourishing.
Baroness Donaghy (Lab)
My Lords, it is a pleasure to follow the right reverend Prelate the Bishop of Southwark in this debate. If he is half as relieved as I was when I completed my maiden speech, I know something of his feelings at the moment.
The right reverend Prelate was an assistant curate at Sandhurst and, as has been said by the right reverend Prelate the Bishop of Portsmouth, a senior curate in the Diocese of Portsmouth in his early career. With his having covered the Army and the Navy, I wonder when the Air Force will benefit from his talent.
The right reverend Prelate’s interests, which he has already outlined, include urban affairs, and that was very clear from his contribution. He is very active in promoting retreats and pilgrimages, as well as in chairing the Zimbabwe round table and pursuing deaf/hearing integration. He is a man of many parts indeed. As a resident of the Borough of Southwark for the past 35 years, I thank the right reverend Prelate for his contribution. I am sure that the House looks forward to his thoughtful and moving contributions in the future.
I believe that this is the fourth occasion on which I have taken part in a local government finance debate, and I thank my noble friend Lord Beecham for making it happen. Looking around, I see that the usual suspects are in the Chamber today, plus one or two distinguished additions. It feels like being a prisoner in a gulag where we are hunched up against the cold and then, once a year, we lift our heads out of our mufflers to acknowledge each other and renew our dedication to the cause of local government. It is a chilly environment indeed.
One could summarise the present situation by saying that it is the same as in the previous four years, only worse—a redistribution of wealth from the poorest to the better off. It is disproportionate compared with other public service cuts. It is done in the name of deficit reduction, yet the deficit is not reducing. It was first announced in June 2010 that the Government’s deficit reduction programme would be for six years; now it appears that we are only half way through a nine-year programme of austerity. Does that mean that the sacrifice of local government, amounting to a 37% reduction by 2015-16, was really in vain?
Reductions in services to the vulnerable elderly and children, increased bills for the working poor and a general diminution in the quality of the environment and the arts do not make headlines. Reductions in the numbers of police, firefighters and local government officers do not make front-page news either, unless something goes wrong. The cuts in social care and the closure of residential homes have a direct impact on the National Health Service, which does make the national news. The NHS is under attack from some in the press, when much of the problem can be laid at the door of the social care crisis.
Noble Lords will be aware that the Children’s Society, among others, campaigned to retain DWP funding for local welfare provision. That has already been comprehensively covered by my noble friend Lord Beecham and the right reverend Prelate the Bishop of Portsmouth, so I will not go into detail as I had intended except to underscore that the local welfare assistance schemes cover the most vulnerable in our society: families under exceptional pressure, people with disabilities, lone parents, young people and victims of domestic violence. How is real need to be met, given the funding gap that is forecast to increase at an average rate of £2.1 billion per year until 2019-20, when it will reach £12.4 billion?
I turn to council tax. The reduction in government funding will leave councils facing unpalatable choices to increase council tax bills for some or all, and to further reduce other council budgets. The Parliamentary Under-Secretary of State for Communities and Local Government, Kris Hopkins, said in his Statement on local government,
“Councils facing the highest demand for services continue to receive substantially more funding”.—[Official Report, Commons, 18/12/14; col. 1590.]
The position on the ground is the exact opposite, and the cumulative impact of the reductions will be felt for a generation.
Baroness Eaton (Con)
My Lords, as a former leader of Bradford Council and a serving member of that authority, a former chairman of the LGA and a current LGA vice-president, I am particularly pleased to have had the privilege of hearing two excellent maiden speeches from the noble Baroness, Lady Pinnock, and the right reverend Prelate the Bishop of Southwark. I am also pleased to have the opportunity to speak in this debate.
As we all know, the noble Lord, Lord Beecham, is a serving councillor, a former leader of Newcastle City Council and a former chairman of the LGA so, despite our political differences, we have much in common. He is someone I respect and whose opinions I always listen to carefully. That said, I am afraid that he, along with so many of his colleagues in the Labour Party, appears to have a highly selective view of the spending reductions that the current Government have had to make. Let us be clear: if Labour had been re-elected in May 2010, there would also have been many reductions in government expenditure that would inevitably have impacted on local government. We know this because the previous Chancellor of the Exchequer, Alistair Darling, said quite clearly before the general election that that was the position. Nor should we forget the letter from Liam Byrne, the then Chief Secretary to the Treasury, who admitted that after 13 years of Labour Government there was “no money left”.
So local government was always going to be faced with significant financial challenges regardless of who was elected in May 2010. Councils have seen reductions in their grant from central government. However, in response, they have risen to the challenge positively by forming partnerships with other local authorities to reduce backroom costs and by securing efficiencies through new ways of working. A common theme of such initiatives is that they can often improve services for residents while simultaneously reducing costs. For example, South Holland District Council now works in partnership with neighbouring East Lindsey District Council to share services in relation to finance, IT, benefits and revenues and human resources. That has been delivered through a joint company that has secured savings of more than £1 million a year and is now attracting work from other councils. South Holland also shares a chief executive with Breckland council, which is creating significant annual savings for both councils.
In recent years, councils have also demonstrated their ability to work with other public sector partners to reduce the cost of services. Along with the noble Lords, Lord Tope and Lord Beecham, I am a great fan of community budgets. Research from Ernst & Young, following the successful pilots, shows that rolling out community budgets nationally could save up to £20 billion in five years. Meanwhile, the Troubled Families programme has helped to turn around the lives of more than 40,000 families, resulting in better outcomes for the individuals concerned and securing major savings for the taxpayer.
In the London borough of Wandsworth, more than two-thirds of troubled families that the borough has been focusing on have successfully turned their lives around within a year. Each of those families represents a potential saving to the taxpayer of £29,000 per year due to a reduction in crime and antisocial behaviour, the number of children taken into care, visits to accident and emergency and intervention from the police and courts, and increased employment.
It is also interesting to note that independent research indicates that the public perception of council services is very different from the doom and gloom rhetoric that we are used to hearing from the Labour Party. Ipsos MORI said last year that two-thirds of local residents consider that council budget reductions had not made a noticeable difference to services.
Of course, none of that is to deny that local government continues to face a challenging financial situation; clearly, like the rest of the public sector, it does. In particular, we need to ensure that as we are all living longer, adult social care is properly funded. For that reason, I particularly welcome the introduction of the better care fund, a £3.4 billion programme to ensure radical transformation in integrated health and social care. It is one of the most ambitious programmes ever across the National Health Service and local government, and will deliver improved services for some of our most vulnerable people.
No one would pretend that the past five years have not been difficult for local government. However, councillors and council staff have risen to the challenge and, through their hard work and willingness to embrace new ways of working, local government has adapted to changing circumstances.
Lord Liddle (Lab)
My Lords, I declare an interest as a member of Cumbria County Council and congratulate the right reverend Prelate the Bishop of Southwark on his moving maiden speech, and Councillor Pinnock—the noble Baroness, Lady Pinnock—on her excellent maiden speech.
I also particularly congratulate my noble friend Lord Beecham on what I thought was a fine and passionate speech. I realise that all Members will not agree with it, but we have to take into account that here we have a Member with 47 years’ experience of local government. I have only 11 and a half years on three different authorities in my time; 47 years can rarely have been matched, particularly in the House of Lords.
The essence of what my noble friend said addresses two really tough questions to the noble Lord, Lord Ahmad of Wimbledon. I fully accept the argument of the noble Baroness, Lady Eaton, that there would have been severe cuts under a Labour Government. The first question is: do the Government believe that their distribution of grants is fair, how do they justify it and how do they avoid the charge of partisanship in the way in which better-off authorities, particularly in the south of England, have been treated? Secondly, instead of scoring cheap points designed to mislead the public about the scale of the local government financial challenge, will the Minister promise to work with local authorities to find ways of protecting essential services at a very difficult time? I will make a particular suggestion in relation to Cumbria.
The situation we face in Cumbria is of forecasting that in the six years starting from 2012-13, all of what was £148 million of revenue support grant will have gone. In total, we have to find £213 million of savings—more than 30% of our budget. We have found £130 million of those already and we have £83 million to go. We think that we have found how to find £53 million of those but there is a black hole of £30 million, which represents a serious threat to essential services in the county. We have been efficient, as the noble Lord, Lord True, said. At its peak, Cumbria County Council had more than 10,000 staff. It now has only 6,800 and there will be another 1,800 redundancies in the next three years, come what may.
However, I had a case in Wigton, which is in my ward on Cumbria County Council, in the last few weeks of an elderly lady who has been looking after her Down’s syndrome son for getting on for 50 years. She can no longer cope. He has dementia and needs to go into a home. There is great difficulty in finding a suitable placement which the authorities can afford. If we cannot do that, we have no right to say that we are a civilised society. We have to find the money for that kind of social help.
In Cumbria, we on the county council think that we could save a huge amount of money if we became a unitary authority. In Cumbria at present, there is a county council, six districts and a national park. There are eight chief executives, eight finance officers and 350 or so councillors to serve a population of half a million people. On top of that, there is an absurd muddle of powers between the different levels. We estimate that £25 million of the £30 million black hole that we need to fill can be saved by creating a unitary authority, but this consensus is extremely difficult to arrive at. It needs a very strong lead from a Government who are prepared to work with authorities rather than rubbish them at every turn. I hope that the Minister will take away from this debate the need not to start a lot of partisan blaming of people for cuts but to start thinking about how the Government can make a real contribution to working with authorities to address the desperate situation in which they find themselves.
Baroness Janke (LD)
My Lords, I very much welcome this debate and thank the noble Lord, Lord Beecham, for initiating it. I also add my congratulations to my noble friend Lady Pinnock and the right reverend Prelate the Bishop of Southwark on their excellent and interesting maiden speeches. My own was very recent so I empathise with how they must feel at this moment, as has been said.
As we have heard, local government funding has been cut dramatically—by 40% by the end of 2015. After several years of cutbacks, the viability of some councils is now becoming a major concern. As a member of the LGA resources board and a serving councillor, I know that local government is seeking solutions to this very hard problem of financing local expenditure, both capital and revenue. With an ever-shrinking cake, we need to find other ways to fund the vital services that people rely on, or recognise that many of those services will disappear. There is great anxiety about care of the elderly, support for vulnerable people, respite care—they are fundamental to many people’s lives. Cuts to community services such as libraries, sports facilities and public health promotion programmes all hit the poorest people hard.
The UK, however, has one of the most centralised systems of government. Just 17% of local expenditure is raised locally in the UK, whereas the OECD average is 54%. Over the past 20 years, in my time in local government, I have been aware of an enormous amount of work which shows clear evidence that cities and city regions can generate economic growth and increase income in local economies. The core cities, the Centre for Cities and the City Growth Commission have produced a range of publications, research reports and recommendations which show that decisions about transport, housing, skills and employment—key economic drivers of local economies—are best taken at local level.
The most recent report from the Centre for Cities shows the potential of cities—not just the largest ones—to deliver economic growth and prosperity within their areas. I hear people asking, “What about areas outside cities?”. The Peace commission shows how non-metropolitan areas can, if given the powers, lead growth, expanding investment and employment in their own areas. The City Growth Commission report of last year describes how an evolving programme could devolve decision-making and financial powers to more strategic local government bodies, whether city regions, county regions or metro areas—all at a pace that suits them.
The evidence is clear that national economic performance could be boosted if all the areas of the UK were to achieve their potential, but that requires commitment from central government to accelerate the pace of devolution to local areas; by “devolution” I mean the devolution of powers, decision-making and financial flexibility, not decentralisation, which I see as much more of an administrative concept. Cities and counties are being prevented from regenerating the local economy by tight bureaucratic control of finances and unsuccessful remote management of key factors that affect economic performance.
It is time to recognise that local government in England needs to be set free from shrinking and conditional grants from central government and competitive bids that increase bureaucracy and are costly and time consuming to produce. When I was leader of my own city I found that my twin cities, especially Bordeaux, were astonished by the time it takes to achieve transport systems in English cities. They conceived of, built and were using their own tram in a fraction of the time it took Bristol to be told that it would not get one.
People in my city ask me why cities in this country are not free to invest in the transport system that suits their needs rather than standing in the queue at the DfT behind other cities and authorities, waiting their turn, when they could invest in the long term and raise revenue to support their investment as do other European and world cities. In the light of devolution of powers and decision-making in Scotland and Wales, there is now an opportunity for government to recognise the potential that devolution could bring and invite proposals that would attract financial freedoms as regards long-term investment and revenue-raising powers.
Local services are effectively in crisis, which is affecting other areas of public finance. There is ample evidence that devolution of financial powers and decision-making to the local level would enable councils to become increasingly self-sustaining as a result of improved economic performance. It is right that devolution of powers to Scotland and Wales is now becoming a reality. It is only fair that the strong local economies of England should not be left out.
Lord Rooker (Lab)
My Lords, I welcome both the maiden speeches and congratulate both Members. I shall base my account of my concerns on the work of Dr Chris Game of Birmingham University, who recently set out, in thechamberlainfiles.com, a master class in local authority funding. What follows is just a summary of that. Dr Game says that the Minister, on 18 December in the other place, claimed that the,
“settlement leaves councils with considerable … spending power. As planned, we have kept the overall reduction to 1.8%”.—[Official Report, Commons, 18/12/14; col. 1590.]
He said that the reduction could be 1.6% if additional transformation money was taken into account. But, as Dr Game points out, grant funding and spending power are not the same. Revenue spending includes council tax receipts, certain grants, and NHS social care funds. That gives a fuller picture. But income from fees, charges and investments is not included in spending power.
So in this confusing system—which is designed to confuse—total government funding to local authorities is really down 13.7%. Furthermore, if council tax income is excluded from spending power, since it is a different kind of income from government grant, the reduction is not 1.8% but 3.7%. Then, as others have said, if we remove the NHS portion of the £3.5 billion better care fund, and include in spending power only the £2 billion for social care by local government, the reduction becomes 8.8%—nearly five times the figure that Ministers have used. Chris Game has done anybody who reads that piece a great service.
The situation in Birmingham is unfair. The cut in spending power for Birmingham is 6%—very close to the government maximum of 6.4%. If one checks all the London boroughs, the metropolitan districts and the all-purpose authorities, the only ones with a cut of 6% or more are Hackney, Knowsley and Birmingham. Yet the recent Kerslake report, which I very much support, and am pleased to see is being implemented quickly, pointed out that Birmingham has,
“more poor children than anywhere else in England”.
In terms of multiple deprivation, it is the 13th on the list. Things are so bad that the Government have had to send in both a social services commissioner and an education commissioner. It appears that Ministers, on a whim, can choose to define spending power to mean what they say it is, or is not, as in Alice in Wonderland. This is not sensible. It is misleading and unfair to Birmingham.
I declare an interest. I have never been a councillor, although I was a failed candidate twice in 1967. None the less, I have had views for 30 years about the way the city should be governed, and I hope the latest attempt to modernise, as set out in the Kerslake report, will work. In the mean time I hope in a few minutes’ time to hear from the noble Lord, Lord Whitby, who, with his Lib Dem partners, was in charge for more than half a decade, until two years ago, why the city is in the parlous state that it is.
Now I shall say a few words about my adopted local authority—although nothing I say about it is meant as a comparison with Birmingham. Some call it Shropshire, but others call it “Greater Shrewsbury”, as it is a council very much centred on Shrewsbury, where all the bosses live. That is how it looks from Ludlow, a handful of miles from the Herefordshire border. I want to deal with only one Shropshire issue. The budget consultation introduction claims Shropshire as a “hub for creative business”, and says that it is,
“accelerating the move of services online”,
that,
“broadband and mobile internet is of equal value”,
and that the council knows,
“we need to do more”.
In October 2012 the head of finance said in an interview that broadband was a problem. And this the most rural county—a great county.
The Prime Minister has said he is not going to overlook rural issues, rural voters or rural concerns. The Chancellor of the Exchequer has claimed that the Government are paying for the expansion of superfast broadband into more and more rural areas. The Secretary of State for Environment, Food and Rural Affairs has tried to spin that all is well with rural broadband. But the reality is that the coalition bosses are ignoring the really rural areas, which need good broadband far more than others to survive. We are creating a two-speed rural economy by not giving priority to rural areas.
Shropshire—or Greater Shrewsbury—Council is absolutely silent on the issue, which I have raised in this House before. Would that I were joined by the county’s MPs. A recent Shropshire Council cabinet paper said that the council would,
“undertake a fresh competitive procurement; with or without match funding”,
as part of phase 2 of the rollout of broadband. No one knows if this means even partial priority for the rural areas of the county. What is more, no one from the county will say, although councillors were questioned at a public meeting in December. It is all a big secret. We have lost too much time already in Shropshire. Businesses and jobs in the “creative hub” of the county are all the losers in this settlement.
The Lord Bishop of Derby
My Lords, I thank the noble Lord, Lord Beecham, for securing this debate and for his introduction to it. I also thank the noble Baroness, Lady Pinnock, and the right reverend Prelate the Bishop of Southwark, who both gave us very specific examples of some of the issues involved in this area.
I want to step back and look at the bigger picture because this debate is about the future of local government. There are some major issues that we need to consider very carefully. The context is, of course, one of cuts and fairness, to which the noble Lord, Lord Beecham, and others referred. However, there is a second context of people’s disengagement from the political process and responsibility for local government. The Minister in the other place talked about the necessity of increasing local democracy. That is part of the bigger picture because one of the issues about the availability of resources is that people want to pay lower taxes. Who is going to have the courage to put their head above the parapet and say that a lot of these services will require higher taxation and more investment? There is a limited interest in the common good, as we would call it. As the welfare state mentality dissolves, the big question is how systems will be encouraged to step into a space and support politics and the funding of it that will deliver all the services that we rightly cherish.
I want to give noble Lords a picture of my work in the city of Derby and ask the Minister two questions about whether there is a new future for local government that we need to build on. I chair the inner city renewal project in Derby, which examines how we spend money in the most deprived areas of the city. All the political parties and all those involved recognise that local government and national government have for years and years put millions of pounds into these very needy areas, providing all the services we are talking about, but to very little effect. That is the challenge in renewing local government. This inner city renewal partnership involves councillors, people who head up the local authority departments, people from the health service, the head of the police operations and people involved in housing, the voluntary sector, the faith sector and community groups. It is hard work to achieve cohesion and connectivity given the different cultures involved. We in the voluntary sector are used to choosing what we are interested in and supporting it, and probably leaving other people to do everything else. Those involved in professional statutory services are used to controlling a budget and controlling the outcomes and there is probably not a lot of opportunity for the community to be genuinely consulted. It is hard work.
Business in our city is interested in contributing to this process but does not know how to do so. We struggle to bring business enterprise to the table, but we are trying. It is vital to find ways to energise people at the grass-roots level from different communities and holding different perspectives to look at the issues in a place—we note the Our Place methodology—be interested in them and want to invest in them. I am not talking just about investing through government grants or local council tax but about the social capital and business contributions that can be raised if people get really involved.
I want to ask the Minister two questions because the Government have a role in creating incentives for adopting this approach to local government and the workings of local authorities. First, will the Government give priority to investing in arrangements for local government and the delivery of services that score highly in terms of partnership working with local community enterprise and local business? Will the Government create incentives for local authorities to reinvent the way they deliver services and fund them by having a strong working partnership with community involvement and local business? My second question also relates to the incentives that can be offered to local government. Can the Government give priority to investing in arrangements that are clearly designed to find new ways of creating and deploying social capital and business involvement?
There is an urgent need for these things if local government is to have a future and be able to deliver what it should do: local people recognising and engaging with local issues and using a variety of resources to try to meet them. There is a great danger at the moment of our just going in two different directions: people shouting for services, quality and professionalism, but not feeling engaged with or responsible for their provision. I will be interested in the Minister’s response on that challenge.
Lord Whitby (Con)
My Lords, since the recent Scottish referendum on independence and the ensuing frenzied end game, devolution has become a major political issue and has stimulated an intense debate over how new powers and resources can be devolved to the most relevant, effective and inclusive political structure. I believe passionately—certainly in local government—that we should celebrate cultural diversity and recognise the significance of regional identity embraced within a national state. So I am very relieved and happy that we are still a United Kingdom.
Britain, however, has one of the most centralised systems of government in the world in terms of its relationship between local government and central government. Just 5% of all the taxes raised by our local people in our great cities is under the control of the city council. The remaining 95% goes to the Treasury and comes back through a multitude of funding streams controlled by Whitehall. Research has shown—and it has been alluded to in this debate—that nations that allow more freedom and independence to their cities tend to have better performing cities and a more balanced economy.
Sadly, our cities have underperformed the economic performances of most of our major European cities. It is imperative that we recognise that. I believe that the coalition Government are rectifying this dilemma and meeting the challenge. As a former city leader of the largest local authority in the United Kingdom, and as a vice-president of the LGA, I welcome the debate on the local government finance settlement, the implications of devolved power and the ramifications of direct funding to our cities. The coalition Government have listened and delegated, in an unprecedented manner, power, decision-making and direct funding—especially to the city of Birmingham—in addition to the financial settlement. While the settlement reduces Birmingham’s revenue spending power by 6%, as already mentioned, the revenue spending power per household in Birmingham is still £2,461 per dwelling—considerably larger than almost all local authorities. Its gross expenditure is still in the region of £3.2 billion.
The Government have devolved power and funding in a sophisticated and imaginative manner. Birmingham Council and the city are benefiting from a range of new freedoms and funds being made available. My friend the noble Lord, Lord Rooker, asked: what has Birmingham done and how has it benefited? A range of investments outside the financial settlement have allowed us to encourage 19,000 new start-ups in 2014. We are already attracting more FDI investment than any other region outside Birmingham. During the period of my administration, we grew tourism from £29 million to £34 million, generating formidable wealth for local industry and small businesses. We left a city that was proud, pointing outward, attracting Chinese investment, and building a whole range of entities that allowed us to be quoted, by the Mercer survey, as one of the only English cities in the top 100 in the world for quality of life. It was local government doing what it should do—making its city globally relevant but caring for its community.
As someone who has worked with Labour and Conservative-led Governments, I know the evolution of devolution has been, at times, extremely slow. Ultimately, however, the coalition Government’s attitude to local government—in particular, their generosity to the city of Birmingham—has to be measured not simply by the financial settlement but through the devolution of power and the many hundreds of millions of pounds that Birmingham has received through the direct, innovative funding streams that are now acceptable through the coalition Government.
Viscount Hanworth (Lab)
My Lords, the finances of local government are an opaque matter. The sources of revenue and the categories of expenditure can be represented in various ways that can give widely differing and quite contrary impressions regarding the state of the finances and the severity of the financial restraints faced by local authorities. There is ample scope for bamboozlement by a Government who are intent on conveying the most favourable impression.
On 18 December in the Commons, Kris Hopkins, who is the Under-Secretary of State for Communities and Local Government, asserted that the overall reduction in spending planned for the year 2015-16 was a mere 1.8%. This figure relates to a wide category of expenditures that include various protected budgets, such as the education, police and principal health budget. However, the so-called settlement funding assessment, which excludes ring-fenced grants for education, but which nevertheless includes the ring-fenced new homes bonus and the ring-fenced public health grant, will decrease by 13.9 %. The wholly discretionary spending of local authorities will decrease by an even greater percentage. When matters are looked at in this way, we begin to get a more realistic impression of the stringency of local government finances.
Another aspect of the finances is the restraint that has been imposed on council taxes. Local authorities proposing to raise council tax by more than 2% will have to hold a local referendum on such a proposal. The high cost of doing so and the likelihood of a negative response will effectively prevent any authority from seeking the sanction of the local electorate. A recent report from the Local Government Association has indicated that since the abolition of the council tax benefit scheme in 2013 and its replacement by a localised council tax support scheme, there has be a significant increase in the burden of taxation borne by lower-income families, many of whom were previously exempted from the tax. These are the people who are suffering most from the curtailment of the services of local authorities.
A summary of the current state of local government finances has been provided in two documents of the National Audit Office published in November 2014, entitled, Financial Sustainability of Local Authorities, and, Impact of Funding Reductions on Local Authorities. These documents point to an estimated reduction in government funding of local authorities in real terms of a 37% between 2010-11 and 2015-16.
In the most severe cases that concern urban local authorities, there will be a real-terms reduction that is in excess of 40% between those two financial years. The question that one has to ask is: how have the local authorities managed their finances throughout a prolonged period of funding reductions? The answer is that, rather than increasing their locally raised income, which they are now largely disbarred from doing, they have reduced their provision of services and cut back on their staffing costs. At the same time, they have sought to increase the levels of their reserves to guard against financial uncertainties and to prepare for future shortfalls in revenues.
A glib answer that has been offered by the Government is that local authorities have been able to manage their finances by making substantial efficiency savings. “Efficiency savings” is a euphemism that bears some examination. Efficiency savings refer primarily to the financial savings that are made by reducing pay. This is achieved when services that have hitherto been provided by local authorities are outsourced to private contractors. By outsourcing the same services to a succession of suppliers, local authorities have been able to drive down the costs.
There are provisions in law that are intended to prevent the deterioration in wages and conditions when the activities and employees of one supplier are transferred to another. However, these provisions apply for a limited time, and they are easily evaded. This is a spurious concept of efficiency and, indeed, the further immiseration and alienation of low-paid workers must lead directly to inefficiencies in the workplace. There is a limit to how far this process of so-called efficiency saving can go. It is liable, eventually, to bequeath a large proportion of our public services to the surviving private suppliers, who will become monopolists serving multiple local authorities. I will end by saying that I would favour the replacement of council taxes by a local income tax and a graduated property tax, levied on both buyers and sellers at the time of a sale.
Lord Shipley (LD)
My Lords, I extend my own congratulations to my noble friend Lady Pinnock and the right reverend Prelate the Bishop of Southwark on their excellent maiden speeches. I declare that I am a vice-president of the Local Government Association.
The very first paragraph in DCLG’s guide to the local government finance settlement in England says:
“Local government finance in England is complicated and can be difficult to understand”.
I think noble Lords would all agree with that, but it is an understatement. It is true, but we now know that the system is unsustainable. The rising pressures on all councils are well documented and it is a tribute to them that they have managed as well as they have. However, it is unlikely that the financial problems facing local government will get much easier, at least in the short term. I hope that they will for those where the cuts have been biggest, but it seems that there will be little extra money for local government overall until at least 2017, whoever wins the election. Labour has now confirmed that it cannot commit to reversing the public sector pay freeze or to scrapping council cuts for the first year after the election.
The reason is that the problem for any Government is stark. The Government are still overspending and are trying to get the annual deficit down. The debt, however, has continued to rise: by over £500 billion in this Parliament. If we protect the NHS, schools, pensions and overseas aid, it follows that everything else has to take a bigger hit. It does not help local government that the general public are broadly content with the performance of their local councils. I suspect that this is because schools and health are protected, many council services are actually minority services and council tax levels have been held down. Given a choice, I think most people would see the NHS as their priority for more spending, not councils.
Despite this, the National Audit Office has said that councils are showing clear signs of financial stress. It also says that DCLG does not gather sufficient evidence to know whether individual councils can or cannot cope with expected cuts in funding. So, in the absence of meaningful data, it is no surprise that opinions can masquerade as fact on all sides, with one side claiming that key services are unsustainable and another claiming that the settlement is fair. For local government, money is at the heart of all of this. There is not enough of it to meet demand and I have come to the conclusion that we would benefit from a clearer link, in the medium term, between the provision of universal local services and the council tax that householders actually pay.
In the short term we need a partnership between central and local government, working jointly with the National Audit Office, to agree a set of baseline facts and approaches. The first of these is how the LGA’s publication Rewiring Public Services can be delivered, because it offers very large annual savings through public service reform. The second is whether we should remove adult social care from the annual settlement process for local government and treat it differently, given the specific pressures on it.
Thirdly, we need to identify clearly the impact of rising demand generally on statutory services. We need to assess why councils charge different levels of council tax in broadly similar places for broadly similar outcomes. We need to explain why rural areas get less per head from central government yet pay much more in council tax, and we need to assess what the savings would be if two-tier areas moved to unitary status.
Councils are going to have to reduce overheads further and raise more of their own money. But I am puzzled by the slow speed of transformation in some councils—although not all—and a similar slowness by some in sharing services across council boundaries. Why is there such a reluctance by some areas to adopt a unitary structure when the cost savings are well established? We have heard from the noble Lord, Lord Liddle, about Cumbria, but this week a report in Oxfordshire said that there could be savings of up to £32 million a year if the six councils merged.
As part of the preparation for what will be an important period after May, it would help if councils did two things: first, talk more in terms of the levels of government support that they receive, rather than just the cuts since 2010, important though those are, since this presupposes that 2010 is the right baseline; and, secondly, understand clearly the level of total public spending in their area, not just their own direct spending, and talk about that publicly.
In conclusion, the big issue is resource equalisation and revenue support allocations based on need. Of course it is right to encourage income growth and good to see the vast majority of councils expecting growth in their share of business rates. But the crucial issue remains: central government allocations should be needs-based.
Lord Smith of Leigh (Lab)
My Lords, first, I declare my interests as the leader of Wigan Council and chairman of the Greater Manchester Combined Authority. I am also a vice-president of the LGA and vice-chairman of SIGOMA. I congratulate the two maiden speakers on their contributions. The right reverend Prelate showed his experience of urban affairs and I agree with him entirely about prevention work, which can save lots of money downstream. The noble Baroness, Lady Pinnock, has a lot of experience in local government. No doubt her contribution was aided by her treasurer from Kirklees, David Smith, who was pinched from Wigan. Not only did he move from Wigan to Kirklees, he changed allegiance from Wigan Warriors to Huddersfield Giants.
My noble friend Lord Beecham showed the fantastic record of knowledge, passion and care for local government that he has built up but I thought that he was a bit unfair on himself. I will give him that he may be short but I do not think that anyone would ever describe him as nasty and brutish. He outlined the scale of the loss of moneys to local government and the fact that it has not been distributed by any means fairly. Like the noble Lord, Lord Shipley, we should congratulate local authorities. Despite all the cuts that many of them have had to make, their financial stability has remained very good. Whether that can continue, as he suggests, may not be the case. We have also managed public expectations quite well. Some of us thought that if we were to make the reductions that we have been making to a number of services, there could be riots on the streets. However, that has not happened, although it may have contributed to the alienation mentioned by the right reverend Prelate the Bishop of Derby.
One of the disadvantages of speaking towards the end of the debate is that everyone has used your language, so I want to move on. Faced with loss of funding as we have, local authorities have a limited number of options. There are efficiencies in local government but we have taken all the low-hanging fruit and there is not a lot left. We can work to transform services but the DCLG unfortunately does not seem to understand. It is not an instant solution and one needs to work hard on that. There has been reluctance to increase council tax, although I see from reports in the media today that in the next year council tax might go up by more in most places. But no one will challenge the referendum. We always said that that was the case.
The real option is making cuts in services. Yesterday, Age UK showed that £1 billion had been taken out of care services. One-third of adults who were receiving home care visits no longer have them. That is the scale of the impact of the cuts to care. It cannot be said that care services must not be cut at all because, given the scale of cuts needed, care services must take a share. However, we hear daily about the crisis in the NHS, particularly in A&E. The contribution of local authorities is a return to the state of bed-blocking. Because we cannot get care packages for people who are in hospital, they are blocking beds and preventing those beds being used for people coming in at the front door in A&E. We need to recognise that.
Being in local government for this period has been a bit depressing. It has been a bit difficult to make the cuts, but we in Wigan have always believed that we would not let Eric Pickles decide our budget. There would always be something in our budget that reflected the values that we have in Wigan, not the values—whatever they are—of the Secretary of State. We have introduced new services that benefit local people. We introduced the living wage, got rid of zero-hours contracts and invested in the community. We have a programme which gives disadvantaged youngsters a chance to get a job. A cost-benefit analysis showed that that scheme saved £4 to the public sector for every £1 we invested. More than that, its impact on vulnerable young people is quite remarkable.
However, we need to think about the future. This settlement is for one year only, and the concern in local government is about what will happen in future years. I remember that in 2010 we suddenly had to face in-year cuts, which was very difficult indeed. I hope we do not have more of those. Everybody I know in local government is revising their forecasts downwards. We have to do better on transformation; this is the only way forward. We can do more in terms of devolution but, as was noted by the noble Baroness, Lady Williams of Trafford, there is more to collaboration among local authorities than sitting down in a room. It takes a lot of work. We have to do that in partnership, with local authorities and central government recognising the problem and working on it.
Baroness Jones of Whitchurch (Lab)
My Lords, I am extremely grateful to my noble friend Lord Beecham for tabling this Motion today. Like others, I pay tribute to his formidable record of representing local government over many years, as well as the demolition job he has done on the Government’s record today. He quite rightly points out that the scale of the cuts now being demanded of councils will inevitably have a devastating effect on core services and vulnerable residents. What is truly shocking is the unfairness of the distribution of the cuts, with the 10 most deprived areas having their spending power cut by 16 times the amount of the 10 least deprived areas. It is not difficult to see whose side the Government are really on. I also welcome the noble Baroness, Lady Pinnock, and the right reverend Prelate the Bishop of Southwark, and congratulate them on their excellent maiden speeches. I look forward to working with them in the future.
In the short time I have, I would like to focus on two examples of the consequences of the Government’s short-sighted policies for disadvantaged children and young people. A couple of weeks ago, we had a very good debate in this Chamber on the importance of early intervention for child development. There was widespread support for the notion that intervention and family support for the very youngest children, those between the ages of nought and three, could make the biggest difference to a child’s life chances and their opportunities for social mobility. This was particularly so for children from the most deprived families, with increasing evidence that this could lead to fewer demands on public services at a later date.
Of course, this was the very notion that led the previous Government to develop the network of Sure Start centres. This policy was so popular that it forced David Cameron to pledge that the centres would be safe under a Tory Government in his hands. Sadly, we now know that this was not the case. The ring-fenced funding was removed and already 600 centres have closed, with councils now forced to consider further closures to meet the new budget reductions.
The last Department for Education figures show that spending by councils on early years services was slashed by some £400 million over three years. In 2013-14 alone, spending on children’s centres and associated early years activities fell by 8.5%. This is despite all the evidence that investment in parenting and support services for very young people can reap enormous rewards later, both for individuals and, indeed, for the state. Does the Minister agree that there is an urgent need to revitalise the Sure Start network, perhaps as a basis for co-located family services, and with secure funding reinstated?
Secondly, I want to refer to the decline in youth services. Again, the Department for Education estimates that these budgets fell by more than 12% in just one year, compounding year-on-year decreases. This too represents a very short-sighted approach. For example, last week I had the pleasure of visiting the Hangleton and Knoll youth project in Hove, along with my honourable friend Tristram Hunt and our Labour candidate, Peter Kyle. We heard about the fantastic work the project is doing to turn around the lives of young people, particularly those who are alienated from the school system and would otherwise be facing poverty and unemployment. But, like many other youth centres around the country, it faces a precarious future. What these young people clearly need is a route into full-time training or quality paid apprenticeships, and it was heartening to hear the leader of the Labour group pledging, if elected, to end youth unemployment in the city by the 2019 election.
Given David Cameron’s new-found friendship with the Green Party, I wonder if the Minister could ask him to have a word with the Green-run council in Brighton and Hove about recognising the value of its youth services and to do something about the hundreds of young people in the city who have been unemployed for more than a year. While he is at it, please could he also have a word with the council about the appallingly low levels of recycling in the city, which have actually fallen by 16% since the incompetent Green Party took office? That highlights its abject failure to deliver on what should be a basic issue for any party that cares about the environment. Finally, will the Minister join me in congratulating the Labour-run Welsh Government, who are already achieving 54% recycling rates and are well on their way to their zero-waste goal? I look forward to hearing his response.
Baroness Farrington of Ribbleton (Lab)
My Lords, with the leave of the House, I should like to speak in the gap. Lancashire County Council found itself, with the Social Fund transfer from DWP, with less than had been spent—a cut. The Local Government Association states that the core funding budget for Lancashire County Council has fallen by 38.79% over the life of this Parliament, while the net budget for Preston City Council will have fallen by 31% over the same period.
I, too, declare a former interest of being involved in local government. There have always been discussions at what were called local government consultative finance meetings. What has changed is the ability of local authorities to initiate new projects because of the tight grip on spending levels, which are based on an assessment of grant distribution and may in no way at all recognise a genuine local assessment of need. There will never be a perfect funding formula for grant because there will always be disputes about weighting levels—how much this or that particular factor ought to be taken into account. However, once you have a vicious system that prevents a local authority from being able to move away from a target set by Whitehall, that is the beginning of the end of local government.
Whitehall does not know best what is needed in Preston and the county of Lancashire, just as it does not in other areas. There could be an argument about how much grant is deserved, whether it is in my noble friend’s Newcastle or in Preston or Surbiton. If one looks at everything that has advanced human life over the past century and a half, a whole range of issues—including public education for all, nursery education and youth services—began as local government initiatives. To me, the real tragedy is that if we have a system that prevents local authorities from experimenting and innovating, we will all suffer.
It is extremely important that we take at face value what people say about their satisfaction with local government, or indeed with the Government or politics. I remember a constituent speaking to me about a reduction in a particular service. I said that the alternative was worsening primary school staff/pupil ratios. His reply was: “I don’t want you to start confusing me with the facts”.
Lord McKenzie of Luton (Lab)
My Lords, I offer my congratulations to our two maiden speakers today. I have no doubt that the noble Baroness, Lady Pinnock, will have much to contribute to our deliberations in the future, and it will be a privilege to have the right reverend Prelate the Bishop of Southwark involved in our deliberations. Like others, I thank my noble friend Lord Beecham for securing this debate, for his typically robust, incisive and passionate introduction and for making a veteran of our noble friend Lady Donaghy.
The settlement under consideration heralds another year of cuts in funding and restrictions in services, another year with unfairness at its heart and doubtless another year of heroic efforts by many councils up and down the country to deliver vital services to their communities in the face of these challenges. My noble friend rightly berates the Government for the manner in which they have represented the settlement, suggesting that the damage is not serious, and the lack of transparency in how some of the numbers are presented.
Indeed, we have heard from most noble Lords this afternoon about the particular challenges for their areas and their authorities. We have had Cumbria from my noble friend Lord Liddle; Bradford from the noble Baroness, Lady Eaton; the London perspective from the noble Lord, Lord Tope; Newcastle from my noble friend Lord Beecham; Birmingham from my noble friend Lord Rooker and the noble Lord, Lord Whitby; Kirklees from the noble Baroness, Lady Pinnock; and Durham from my noble friend Lady Armstrong. We have heard from my noble friend Lord Smith of Leigh, who, in his roles for the combined authority of Wigan and Greater Manchester, is on the front line in endeavouring to cope with the consequences of earlier settlements but has also been at the forefront of trying to work with the grain of government on innovative city deals.
As we have heard, the settlement funding assessment is to reduce by 13.9% on average in 2015-16. This comprises the local share of business rates and the revenue support grant, which itself is to reduce by 27%. This means a real-terms cut of £2.6 billion next year, contributing to £20 billion of savings required of councils by the end of next year. It amounts, as we have heard, to a staggering 40% reduction in core government funding since 2010. Local government has taken a larger share of austerity adjustments than any other part of government and is scheduled to take more.
Noble Lords will know that the settlement reflects the business rate retention scheme. Under this, the central share of business rates—£11.3 billion for next year—should be returned by the Government to local government in full; that was the deal. However, some £0.9 billion is missing at present, so perhaps the Minister will specifically take this opportunity to say how and when this sum is to be channelled back to councils. As the NAO points out, there have also been real-terms cuts in council tax income because of the encouragement to freeze, and the referendum hurdle. Perhaps we are entering a time when more will test the democratic process through that referendum. I will resist the temptations of my noble friend Lord Hanworth to go down the path of a local income tax. Of course, not all councils have frozen council tax, including some Tory councils.
As many noble Lords have said, we know that the Government’s favourite measure of the settlement is to quote spending power, which includes not only estimates of council tax plus the SFA but the new homes bonus, the public health grant, some other grants and the better care fund. Such a metric produces a reduction for councils of just 1.8% next year. Of course, we understand politically why the Government would wish to promulgate this figure in the court of public opinion, but we join the LGA—and, I think, other noble Lords—in asking them to come clean on the impact of this by including it in the grant settlement. In particular, will the Minister confirm that not all BCF spending is on social care services or commissioned by local authorities? The LGA estimates £2 billion of the £3.4 billion to be of this nature. What is the Government’s assessment?
We know that whatever happens in May, resources in the next Parliament will be constrained. That makes it all the more important that what is available is distributed fairly, and on this score the Government fail lamentably. We will doubtless hear from the Minister that the 10% most deprived authorities receive 40% more than the least deprived areas. If true, that is still not an answer to why, when applying cuts and adopting the Government’s preferred measure of spending power per head, they are reducing—and have in the past reduced—the spending power of the most deprived areas and actually increasing the spending power of the least deprived areas. Noble Lords have heard the statistics: for Hackney, a loss per head of £109.50; for Wokingham, a gain of £49.47. Will the Minister confirm that this is the position and let us have the Government’s specific justification for this outcome? In the words of my noble friends Lord Liddle and Lady Jones, why is this fair?
Indeed, if we look into the Government’s approach to fairness, other aspects of the settlement give cause for concern. First, there will no longer be a separate element for council tax support schemes in the settlement, and funding for council tax support schemes is estimated to have fallen by £1 billion since they were localised. LGA research suggests that household bills are rising for some of the poorest households in the country as councils struggle to maintain their schemes—sadly, an outcome that we predicted. This will eventually feed through in higher levels of debt, lower levels of council tax collection and more costs for local authorities. Of course, the fact that council tax support funding is no longer separately identified contrasts with the treatment of council tax freeze funding, which has been specifically protected.
A number of noble Lords have commented that the Government have now determined to separately identify what is in the settlement for local welfare assistance, which is at a lower level than the current year. There is no new money attached to this, and this is a matter that we would wish to review in government. The Government’s approach is illustrative of their short-term thinking. Most of us will have heard from Crisis and the Children’s Society, and we heard from the right reverend Prelate the Bishop of Portsmouth this afternoon, about the importance of this funding stream as a safety net of last resort to protect the most vulnerable. They express fears about emerging evidence that the cuts will mean more and more councils will not be able to provide this welfare assistance, with consequential impacts on services such as homelessness and support for children leaving care, with the resultant higher costs in the longer term.
The treatment of some other significant numbers in the settlement also raises issues of fairness. The top-slicing of most of the new homes bonus means less being distributed by the RSG and more through the NHB mechanisms. This is disadvantageous to those authorities that face inherently more difficulties in stimulating growth or which may lack development land.
Where is all this leading the local authorities? The NAO’s findings are that councils’ focus has changed over the period of the 2010 spending review, with statutory services such as adult social care services contributing a higher percentage of savings in the latter period than in the former. The reverse is true for discretionary services such as planning and development, although the Federation of Master Builders has pointed out the folly of further reduction in planning departments where there is a housing crisis that needs addressing. CIPFA’s annual survey of chief finance officers showed nearly half of them less confident of being able to deliver services next year. The NAO’s report on the sustainability of local authority finances predicted that 55% of metropolitan district councils are in danger of missing savings targets. CIPFA refers to a “perfect storm” of demographic pressures bringing increasing demand for adult and children’s services at a time of continuing cuts and an erosion of the local tax base.
The evidence from adult social care is that savings have been made through both efficiencies and cuts in service levels, but the scope of the efficiency savings is diminishing. The LGA reports that adult social care is facing a funding gap of £1.6 billion next year, which could rise to £4.5 billion by 2019-20. It highlights that savings of £3.5 billion have been delivered over the past four years, but its research showed that 60% of councils were considering stopping at least some services in 2015.
What reassurance will the Minister give today to councils that remain very concerned about the affordability of the Care Act and, indeed, the timetable for implementation? This settlement follows the pattern of others under this Government. It cuts the budgets of local authorities in the most deprived areas significantly more than those in the better-off areas, leaving councils facing a huge funding gap that will only increase by 2020 unless we take another course.
With regard to the question from the noble Lord, Lord True: given a chance at government, we would implement a fairer system to ensure that those communities that need the most support did not have to bear the brunt of the cuts. We would also devolve power and resources currently held by central government to city and council regions to enable local authorities to reshape and integrate services to more effectively support local people. We would put a stop to making the poorest bear the biggest burdens.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, I join other noble Lords in acknowledging the excellent contributions and two maiden speeches. I congratulate my noble friend Lady Pinnock on her maiden speech and reassure her somewhat. Her sense of getting lost in the House is something that perhaps those who have been here slightly longer and much longer still experience. That is not an individual experience. From her maiden speech, we have seen that she is going to be an incredible asset, to the party, to the Government and, indeed, to your Lordships’ House.
I turn to the excellent and reflective speech of the right reverend Prelate the Bishop of Southwark. Everyone has laid claim to the diocese of Southwark. I suppose that, being Lord Ahmad of Wimbledon, I can also lay claim to being part of the diocese of Southwark. I look forward to working with the right reverend Prelate as another representative voice of the town of Wimbledon. I welcome his contribution today. We look forward to the contributions of both noble Lords in future debates.
It would be remiss of me not to pay tribute to the noble Lord, Lord Beecham. I was listening very attentively to all the contributions and I want to single out the description that the noble Baroness, Lady Armstrong, gave. She said that she described her relationship with him, when she was Local Government Minister, as one of deep respect, at times friendship as well—I would add to that—and she did not always agree with the noble Lord. I think that sums up my relationship with the noble Lord as well, although I was a bit concerned when the noble Lord, Lord Liddle, said that he would pose a challenge. He then talked about the 47 years of experience of the noble Lord, Lord Beecham, in public life. I must admit I have not been around for 47 years, so I thought he was going to pose the challenge that I would have to account for every year. I am sure that when he writes his autobiography we will all reflect on those worthwhile years. In thanking him, he will not be surprised to hear that I cannot agree with most of what he said about the challenges of the settlement.
The Government have inherited the largest deficit in post-war history. Thanks to the actions that we have taken as part of our long term economic plan, the deficit is falling, the economy is growing and employment is at a record high. The Government are putting our public finances back on track. Of course, we could not have done this alone, and I fully acknowledge the incredible effort and significant contribution that local government, like every part of the public sector, has made. Councils all over England have responded strongly to the challenge of delivering public services in this new context. I thank my noble friends Lord True and Lady Eaton for their words of support and for highlighting some of the challenges that remain.
Of course, there is much still to do. English local government accounts for about a quarter of all public expenditure, more than £114 billion this year. So the Government still need to take difficult decisions on local government funding to ensure that the public finances are on a sustainable path. Local councils will continue to play their part in this.
Much has been made of the delivery of a fair settlement. The noble Lords, Lord McKenzie, Lord Liddle and Lord Rooker, and the noble Baroness, Lady Jones, all mentioned it. We announced the provisional local government finance settlement on 18 December, as many noble Lords acknowledged. With this settlement, we have kept the overall reduction in local authorities’ spending power to 1.8%, one of the lowest levels of reduction under this Government. If we include the funds that the Government have provided to support local transformation, the overall reduction is even lower, at 1.6%.
I acknowledge that councils are facing the highest demand for services. They continue to receive substantially more funding and we are continuing to ensure that no council will face a loss of more than 6.4% in their spending power in 2015-16, which is the lowest level in this Parliament. The noble Baronesses, Lady Armstrong and Lady Farrington, talked of relative needs. These were reflected in the funding baselines at the outset of the new system of business rates retention in 2013-14.
Growth is also a key part of this Government’s agenda. Throughout this Parliament, we have deliberately shifted the emphasis from keeping authorities dependent on grant to providing councils with the tools they need to grow and shape their local economies.
The noble Lord, Lord Beecham, asked about the LGA and the NAO figures. The NAO estimates a 37% reduction in spending power, but the Government’s spending power figures are transparent and allow others to calculate their own figures. The NAO does not include the better care fund or public health, which are two important policy initiatives worth more than £6 billion. Various figures for settlements and spending power were cited—we could have this debate all evening and further into the night. There is no doubt that some authorities have had reductions, but, when we look, for example, at the new homes bonus, we see that Leeds has seen an increase of £1.92 million, Salford £27.94 million, Warrington £22.67 million, Ryedale £40.59 million, East Riding of Yorkshire £5.02 million and Kirklees £3.86 million. Those are positive figures.
We have also given councils a real stake in stimulating local growth. Authorities up and down the country are benefiting from the greater powers and incentives that we have provided to invest in growth. These include Newcastle. I am delighted that the noble Lord’s council has also benefited and has frozen its council tax for the past four years in response to the challenge laid down by the Government. The noble Lord shakes his head. Is it not true?
Lord Ahmad of Wimbledon
Of course I said for the four years up to where we are now. I am sure that, under his direction, the council will respond to future challenges.
My noble friend Lady Janke asked about devolution, which is a subject high on the Government’s agenda. I would assure her that Newcastle, Sunderland and Northampton have seen the greatest growth in the amount of business rates retained in 2013 as a result of enterprise zones and new development deals. We have done city deals with Manchester and Sheffield. Additionally, we have provided £730 million in Growing Places funds. We have also emphasised a close working association with local enterprise partnerships—that is part of my ministerial responsibility when it comes to European funding. Local priorities have been reflected in ERDF funding up to 95%, and also in European social funding. For 2014-15, authorities’ own estimates show that 91% are expecting a growth in their business rates—a total of £414 million.
The noble Lord, Lord Rooker, talked about issues to do with cities. He mentioned Birmingham. I trust that my noble friend Lord Whitby addressed some of his concerns. Looking at some of the figures, for example, during the period 2010 to 2014, the reserves in Birmingham increased by £221 million, or 396%—and that was from a relatively low base—notwithstanding some of the serious challenges the city has had.
Councils benefit directly from the new homes bonus as well, bringing long-term empty homes back into use. We have provisionally allocated £1.2 billion of new homes bonus funding to local authorities in England for 2015-16, and this brings the total to almost £3.4 billion since the scheme began.
The noble Lord, Lord McKenzie, raised issues of business rate retention and excesses. The excess of central business rates over revenue support grant will be returned to local government through specific grants, of which there are many across government, thus complying with the statute. I shall write to him with specific examples if he so desires.
The noble Lord, Lord Tope, talked about the direction of travel when it came to the retention of business rates. I can assure him that my right honourable friend the Secretary of State, whom he, too, knows well, has indicated his personal commitment to see business rates retained locally—perhaps to a level of 90% from the current 50% by 2020, if financial circumstances allow.
The noble Lord, Lord Rooker, also talked about the rural economy. We continue to recognise the challenges faced by rural communities. The Government have a clear commitment to rural areas, and consecutive settlements have helped to address the gap in urban/rural spending power. The gap is closing and has already benefited rural authorities to the tune of £208 million over the last four years. I assure the noble Lord that we expect this gap to continue to close. In the mean time, the settlement confirms another year of additional resources for most rural authorities, to recognise the challenges they may face in delivering their services. In 2015-16, this grant has been increased to £15.5 million.
The noble Lord also rightly raised the issue of broadband. I will share with him a personal experience. I went to Cornwall and the Isles of Scilly to launch a broadband service with senior management and the chief executive. The only hitch was that we were unable to land on the Isles of Scilly because it was clouded over. I have never been, but I saw an aerial view and hope that I shall return one day. We are investing a great deal more—£780 million has been allocated to roll out broadband—with priority given, exactly as the noble Lord suggested, to the hard-to-reach areas.
My noble friend Lord Shipley talked with great aplomb about the need for transformation and for local authorities to lead. I was heartened by the contribution of the noble Lord, Lord Smith of Leigh, most of which I can relate to and agree with. As well as growing their economies, the best authorities are transforming the way they do business. This includes places such as Devon, where libraries are being expanded into community hubs, providing a greater range of services, including those designed to tackle digital exclusion and improve employability skills.
The Government are also supporting councils to demonstrate innovation, achieve real savings and, most importantly, improve outcomes for the people who use local services. In November we announced 73 projects that had successfully bid for the Transformation Challenge Award. These projects will receive about £90 million to improve services, and will ultimately save the public sector more than £900 million.
I turn to the better care fund and refer briefly to the Troubled Families programme. That programme has illustrated how together, government departments working closely with local authorities can achieve the best results for our residents—indeed, the citizens of our country. We have therefore created the better care fund. It has a £3.8 billion pooled budget for health and social care in 2015-16. My noble friend Lady Eaton spoke with great eloquence about that initiative, which will help drive further and faster integration between those services.
Local partnerships have chosen to pool an extra £1.5 billion, and this will help to achieve significant change in services that will benefit some of the most vulnerable in society. That was a specific concern expressed by the right reverend Prelate the Bishop of Derby. We are looking to prioritise those areas where there is greater partnership working. As the right reverend Prelate will know, on a wider scale we have looked to the community directly, and the Near Neighbour scheme, so ably chaired by my noble friend, has shown dividends from communities working on the ground together to provide the best services and the best initiatives to create the more cohesive communities that we all desire.
As noble Lords have said, and I fully acknowledge, the challenge for local government over the next few years is substantial, as it is for everyone managing public services. I fully acknowledge that there is huge energy and commitment in the sector to deliver the best possible public services for our local communities. I know that members and officers up and down the country are already thinking radically and creatively about the years ahead, and we will continue to support them. I assure the noble Lord, Lord Liddle, among others, that we will work with them directly to ensure that we get the best service provision at a local level.
Local welfare provision was raised by several noble Lords, including the noble Baroness, Lady Donaghy. We will work closely with colleagues in the Treasury and the Department for Work and Pensions. We have been analysing the responses to our consultation. I have met two or three councils directly, along with my honourable friend Kris Hopkins. This concern has come up consistently among local authorities’ priorities. We have been looking at how local welfare assistance should be funded in 2015-16 and, as I said, working with the Department for Work and Pensions on it. The Government believe that local authorities will continue to be able to offer local welfare assistance for 2015 from within existing budgets, alongside a range of other services if they judge it to be a priority in their area.
The right reverend Prelate the Bishop of Portsmouth talked about earmarking certain funding. There are demands for greater devolution and for local authorities to judge their priorities. It is our view that this is what should prevail in this area. We have consulted on having a separately identified amount relating to local welfare provision in each upper tier authority’s general grant, totalling £129.6 million nationally. This will not be ring-fenced and we will not be placing any new duties, expectations or monitoring requirements on its use. The Government have also been very clear that councils should choose how best to support local welfare needs, because what is right for Croydon will not be right for Cumbria. In relating that, I hope that I address some of the concerns expressed by, among others, the noble Lord, Lord Whitty.
The right reverend Prelate the Bishop of Portsmouth raised the issue of vulnerable women, particularly those who suffer domestic violence. Recently I announced from this Dispatch Box an additional £10 million of funding for women’s refuges up and down the country, which will benefit more than 100 local areas.
I assure your Lordships that the Government will consider all responses to the consultation on the settlement, including those which relate to the provision for local welfare over existing budgets, and will take these into consideration when announcing the final settlement.
All councils should be freezing their council tax in 2015-16 to help people with the cost of funding. The noble Viscount, Lord Hanworth, and the noble Lords, Lord Smith and Lord McKenzie, raised the issue of referendums. A referendum in 2015-16 can be held at reduced cost when combined with the general election. If a council has a good case for an increase above the 2% threshold, we believe that it should trust its electorate.
There were other points covering some of the areas that I look after, such as tackling fraud, but time does not permit me to go into them. If specific questions have been raised, I shall of course review Hansard to ensure that we answer them.
Finally, I wish to put on record the thanks of the Secretary of State, as well as other ministerial and governmental thanks, and mine, to all councils that are working tremendously hard in ensuring the best local services. I believe that anyone who goes into public life does so with the right intent. As we have heard from several noble Lords today who have represented electorates at a local level, it is for the right reasons: to serve their electorate to the best of their abilities.
Finally, it falls upon me to thank once again all noble Lords for their contributions, which have again provided a very informed and deep insight into the debate over local government finance. I am sure that I am accurate in saying that it is not the last time we shall discuss it. Nevertheless, the quality of the debate that we have had has again demonstrably shown the best of this House.
Lord Beecham
My Lords, I will say three things very briefly, given the time. First, I think the Minister for his usual courteous response—actually there are four things, because that was the first. Secondly, I congratulate again the maiden speakers, from whom we will hear a great deal to our benefit in future. Thirdly, the noble Baroness, Lady Eaton, referred to surveys showing that people have not noticed a particular difference in services. I remind her that a year or so ago, Conservative councils and the Conservative-led Local Government Association warned that with these present policies, councils would be curtailing services except those which are statutory duties by the end of this decade, with nothing else being provided.
Finally, I note the call of the right reverend Prelate the Bishop of Derby for an increase in local democracy. I would certainly endorse that, but it is not really consistent with what has been happening. The Minister has just called upon councils to freeze council tax or have a referendum. This is a bit odd, coming from a Government who came into office with, Mr Cameron said, no plans to increase VAT. They increased VAT by 2.5% within six months of taking office. That raises £13 billion a year—and, oddly enough, they did not hold a referendum.