Local Authority Financial Sustainability: NAO Report

(Limited Text - Ministerial Extracts only)

Tuesday 20th March 2018 Westminster Hall

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Mrs Heather Wheeler)]

It is a pleasure to serve under your chairmanship, Mr Evans—for the first time, I believe. I congratulate the hon. Member for Weaver Vale (Mike Amesbury) on securing the debate. For the record, I am married to a councillor, and I employ a councillor.

This is an important issue that the Government take seriously, and we recognise the hard work of our councillors, councils and council staff. The report sets out the National Audit Office’s view on the financial sustainability of the sector. I wish to take this opportunity to set out what the Government are doing to support local authorities and to design a fairer and more transparent system of funding that gives them more control over the money they raise. Every day, local authorities deliver vital services to the communities they serve. Like the rest of the public sector, they have had their part to play in helping to bring down the deficit. It is to their credit that they have continued to provide high-quality services, while delivering a better deal for the taxpayer. Indeed, so good are they that non-ring-fenced reserves have increased by 47% since 2011, to £21 billion in March 2017.

We take the funding of local government very seriously. That is demonstrated by the package of measures that we provide to local government as part of the 2018-19 finance settlement, which Parliament approved last month. The settlement confirmed a real-terms increase in resources for local government over the next two years, from £44.3 billion in 2017-18 to £45.6 billion in 2019-20. That is the third of a four-year deal, and it has reinforced our commitment to delivering more freedom and fairness, and greater certainty to plan and secure value for money. The deal has given English councils access to more than £200 billion of funding in the five years to 2020.

We recognise that pressures are growing, particularly in the light of higher than expected inflation—I was delighted, however, to hear today’s announcement that inflation is down to 2.75%—and pressures on services such as adult and children’s social care. That is why in the settlement we sought to strike a balance between addressing the pressures on services and the burden placed on taxpayers, by increasing the core council tax referendum principle by 1% to 3% for authorities in 2018-19.

[Andrew Gwynne]

But that is not a single penny extra from central Government. All the Minister has done is shift the burden from central Government on to local taxpayers. As I explained, a 1% increase in Tameside brings in £700,000. It is not enough, is it?

[Mrs Wheeler]

I thank the hon. Gentleman for that intervention and repeat: the money from this Government has increased from £44.3 billion in 2017-18 to £45.6 billion in 2019-20. The National Audit Office rightly noted that local authorities are increasing their spending on the social care services that councils provide to our elderly and vulnerable citizens, in the face of growing demand. This is why at the spring Budget in 2017 an additional £2 billion was announced for adult social care. This year we have seen how that money has enabled councils to increase provider fees, provide for more care packages and reduce delayed transfers of care.

[Mike Amesbury]

That still equates to a 3% reduction from 2010 to 2017. It is a real-terms reduction.

[Mrs Wheeler]

I am always delighted to hear the dexterity of mathematicians in this building. It is £44 billion up to £45 billion, which I see as an increase. [Interruption.] I will move on. Local government and the NHS have worked in collaboration this year to deliver significant improvements in care. That is highlighted by the 26% reduction in delayed transfers of care, when comparing February this year with February last year. That is not all, however, because a further £150 million is being made available in 2018-19 for adult social care support grants. That, alongside the freedom to raise more money more quickly through the use of the adult social care precept, and the improved better care programme, means that councils have access to £9.4 billion in dedicated adult social care funding over the three years from 2017-18 to 2019-20.

[Fiona Onasanya]

Listening to the figures being presented, I understand the proposition that there has been an increase in funding. However, as Labour Members have said in their contributions, in real terms this is not an increase because supply is not keeping up with demand. I feel that this is like the emperor’s new clothes—the emperor seeks to describe the elegant, flamboyant gown that he is wearing, but actually he is completely naked. The amounts that the Minister is talking about do not keep up with the demand. These are demand-led services, and that is the point we are seeking to make.

[Mrs Wheeler]

The hon. Lady makes her point very elegantly, but I prefer the dress she is wearing today to ones I might imagine.

Alongside the £150 million for adult social care support grants, there is the freedom to access £9.4 billion up to 2019-20. I make it absolutely clear that real improvements are being made in adult social care services. That is in relation to the delayed transfers that have happened and the change whereby the NHS is working so much better by working hand in hand with local government. There has been such an improvement.

Like the NAO, we recognise the importance of investment in prevention and in high-quality children’s services. That is why the Government have invested almost £250 million since 2014 to help the children’s social care sector to innovate and redesign service delivery to achieve higher quality and better value for money. We have also invested £920 million in the troubled families programme, reducing the number of children in need.

I would like to say something about our work to deliver a fairer funding settlement for local government—I do appreciate the comments from the hon. Member for Denton and Reddish (Andrew Gwynne) on this matter. We all know that we live in a changing world. Over the years, the current formula for budget allocations has served councils well, but what is right today might not be right tomorrow. The conditions that councils face, including demographic shifts in some parts of the country and new risks, mean that the system of financing local government also needs to change. We need an updated and more responsive way of distributing funding that gives councils the ability to meet the challenges of the future. That is why we are currently working with councils to undertake a review of local authorities’ needs and resources. There have been widespread calls for a thorough review, and we will deliver that.

We are committed to using the most up-to-date data available and, as far as possible, taking an evidence-based approach to both current and future demand. What we are looking to do is very important. We want to devise a new funding system that more fairly reflects modern needs. The Government aim to implement a new system, based on their findings, in 2020-21. Alongside the new methodology, in 2020-21 the Government are committed to giving local authorities greater control over the money they raise.

[Wera Hobhouse]

Will the Minister ensure that no council gets less money as a consequence of the new funding formula that she is proposing?

[Mrs Wheeler]

Much as I would love to do that, I think the safest thing I can do is refer the hon. Lady to the new funding for schools. Every single school has not had a reduction under the new fairer funding; every single school has had an increase of at least 1%.

[Thelma Walker]

rose—

[Emma Hardy]

Will the Minister give way?

[Mrs Wheeler]

No, I am going to carry on. As I said, alongside the new methodology, the Government are committed to giving local authorities greater control over the money they raise, which we are doing through our plans for increasing business rates retention. Local authorities are the engines of local growth. They know best the levers to pull to boost their business rates, which is why business rates retention is an important move. Our aim is for local authorities to retain 75% of business rates from 2020-21, with the other 25% going to councils that do not have a large business rates take.

[Emma Hardy]

On that point, if I am not able to make the point that I was going to make previously, I want to ask this: will the system make allowances for councils such as Hull? Currently, 81% of its income comes from the Government revenue grant and only 19% can be raised locally.

[Mrs Wheeler]

Yes, indeed. Forgive me for repeating myself, Mr Evans: 25% will go to the councils that do not have large business rates retention.

[Emma Hardy]

The Minister says 25%. Hull City Council currently relies on the Government revenue grant for 81% of its income, not 75%.

[Mrs Wheeler]

The business rates for the City of London are many, many millions of pounds. The money that is split out goes to the rest of the country.

[Andrew Gwynne]

Of course, this is not just about the councils that are unable to raise enough business rates to support their services now. Will adequate funding mechanisms be in place to ensure that if a large employer were to close and leave a council that is currently sustainable in terms of business rates, it would in effect get the shortfall created by the employer moving out or closing down?

[Mrs Wheeler]

I would be devastated if that happened and I cannot imagine why it would happen, with the growing economy that we have.

We will continue to work with the sector to identify opportunities to increase the level of business rates retention further at the right time. We are already making progress towards that. The Government have announced an expansion of the piloting programme for business rates retention into 2018-19. In the latest round of pilot bids, more than 200 authorities put themselves forward, demonstrating local government’s enthusiasm for business rates retention. We are enthusiastic about working with them to take that agenda forward. We will be taking forward 10 new pilots, covering 89 authorities, instead of the five that we originally planned. A further pilot will begin in London in 2018-19, and existing devolution pilots will continue in 2018-19. The 10 that we have selected, taken alongside the existing pilots, give a broad geographic spread.

[Mike Amesbury]

At what stage will the Government legislate, as they previously stated they would, to ensure that there is 100% business rates retention? And surely, as part of the funding mix, an area-based grant needs to be retained.

[Mrs Wheeler]

I am afraid that the hon. Gentleman will have to wait for that to happen.

I referred to a broad geographic spread. That was carefully thought through, as we want to see exactly how the system works across the country, and the pilots will ensure that that happens. The expansion of the pilots, and our plan to do more piloting in 2019-20, is how the Government are listening to the voice of local councils. The precise benefit to the areas involved will depend on the economic growth that they achieve. I am very keen to see what we can learn from these and the other pilots. We should be clear: the system of business rates retention is helping local authorities to benefit from the proceeds of growth.

[Dan Carden]

Does the Minister agree with us that, actually, a fair funding formula is about the requirements of the citizens who live in the area, and that that has to be the responsibility of not just local government, but national Government? I invite the Minister to come to Liverpool to see what would be the consequences of any business rates changes before they take place.

[Mrs Wheeler]

I thank the hon. Gentleman for that kind invitation; I am sure that eventually that will happen. Thanks to the business rates retention scheme, local authorities have had approximately an additional £1.3 billion of funding to support local services in 2017-18. That is over and above their core settlement funding.

Investment is important, but it is also vital that local government continues its work to deliver better value for money. Local government has a strong track record on efficiency, setting an example to other parts of the public sector. My right hon. Friend the Secretary of State and the Under-Secretary of State, my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), who is responsible for local government, are keen to continue to work with the sector to increase transparency and share best practice and to harness the power of digital to transform services.

I am glad that we have had this chance to discuss the National Audit Office report. It is good that the NAO has recognised the positive work of the Department in getting to grips with the challenges across local government. I believe that the Government have shown that we are alive to the challenges that the sector faces and have a coherent plan for reform.

I thank the hon. Member for Weaver Vale for calling a debate on this important issue. I look forward to working closely with many colleagues over the coming months and discussing some of the challenges and opportunities facing the local government sector, and I look forward to hearing the hon. Member for Weaver Vale winding up the debate now.