Local Government: Finance Settlement

Baroness Hanham Excerpts

Wednesday 23rd January 2013 Lords Chamber

[The Lord Bishop of Liverpool]

To ask Her Majesty’s Government what steps they are taking to ensure that financial settlements for local government funding are fair.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, the Government have proposed a fair settlement for 2013-14 and 2014-15. Each local authority’s baseline funding level and the calculation of its tariff and top-up are based on figures that take account of the different needs of each area. The settlement allows local government to keep nearly £11 billion of business rates and keep the growth on that share of business rates, providing a direct financial incentive for councils to deliver growth.

[The Lord Bishop of Liverpool]

My Lords, I thank the Minister for her Answer, and I assure her that my Question arises out of very genuine pastoral concern. Can the Government not think again in the interests of greater fairness and make more allowance for the highest levels of deprivation in both rural and urban areas? For example, in Liverpool there is to be a 52% cut in services over four years, which will directly impact upon services to mentally ill children, vulnerable families and the elderly housebound.

[Baroness Hanham]

My Lords, I know that the right reverend Prelate is very involved in the discussions that are taking place about settlements and the various levels of deprivation. I believe he held a conference last week that addressed this important subject.

However, the methodology that has been used and is set out in the formula funding document, which has been out to consultation several times, takes account of deprivation and the high cost of providing services in areas that have high deprivation, where local authorities have a low ability to raise funding. Such authorities will receive more funding than authorities with a low cost of providing services and a high ability to raise funding locally.

[Lord McKenzie of Luton]

My Lords, under the local government settlement for the two years ending this March, the Audit Commission reported that in the 20 most deprived areas of the country revenue spending had fallen by 14% and in the 20 least deprived by 4.4%. In the most recent settlement, the 20 most deprived authorities will have their spending power cut by an average of 8% and the least deprived by 0.7%. Can the Minister tell me what definition of fairness justifies this distribution?

[Baroness Hanham]

My Lords, the distribution has been carried out, as it always is, against a formula which makes sure that there is fairness of distribution across the piece. As the noble Lord has just suggested, the highest loss of spending power is 8% and the lowest is much less than that. The department has taken a great deal of care to try to ensure that funds are well distributed across the country. Noble Lords will know that what we are dealing with here is, again, one of the difficulties of having a deficit left by the previous Government.

[Lord Tope]

My Lords, does the Minister agree that it is at least as fair to look not only at the amount of funding the Government give each local authority but at the amount of funding each household gives to its local council? For instance, is she aware that in Liverpool the average annual council tax payment per dwelling is £961, whereas in Surrey it is £1,667, perhaps reflecting levels of deprivation? Is that fair?

[Baroness Hanham]

My Lords, all I can say is that this is being done against the background of a formula which is pretty well understood. The average household spending power across the country is £2,000. The settlement is as fair as it can be in the financial circumstances.

[Lord Harris of Haringey]

The Minister tells us that she is presiding over this pure system of allocating resources between local authorities which is delivering fairness. Did Ministers change the formula for distribution so as to produce a result whereby, as my noble friend from the Dispatch Box pointed out, the most deprived areas are losing the most?

[Baroness Hanham]

My Lords, the formula has not been, as has been suggested, tinkered with; that is how it has come out. It is fair to point out that the local government settlement is not the only funding that local authorities get; there is also the new homes bonus and other contributions that local authorities can have. It is not just the settlement.