Provisional Local Government Finance Settlement

Debate between Baroness Pidgeon and Lord Jamieson

Thursday 19th December 2024 Lords Chamber

[Lord Jamieson (Con)]

My Lords, I declare my interest as a councillor on Central Bedfordshire Council. I thank the Minister for bringing this Statement to the House of Lords. While I welcome the additional funding announced in the spending review, it is unfortunately not keeping pace with the increases in costs and demands seen by councils, and it is dependent on an above-inflation 5% increase in council tax. Is this not yet another tax on hard-working people?

The Government are also imposing additional costs on local government, and while they are funding the £550 million of national insurance increases for directly employed staff, they are not funding the LGA’s estimated £1.25 billion impact due to costs imposed on our suppliers. I might add that this ignores the impact on many of those local charities that do so much for our communities. This will lead to cuts in local government services and a reduction in the support that those local charities provide. Will the Minister commit the Government to look again at this matter?

I remind the House that, in the Autumn Budget, the Chancellor pledged to raise the national living wage. It is set to increase by a further 6.7% in April 2025, with minimum wage rates for younger employees and apprentices set to increase by between 16% and 18%. This is welcome for those on some of the lowest wages. However, it will have a cost impact for local councils, where many social care services are provided by suppliers that pay close to the living wage. This is another cost that local authorities will have to absorb, unless the Government agree to fully fund the increase. Will the Government fully fund the impact of increases in the living wage?

As the Minister is well aware, the rapidly increasing costs of SEND services is crippling councils, and this desperately needs to be reformed, as we have often debated in this House. Continuing the statutory override for dedicated schools grant deficits will delay a number of councils going bust, but with the deficit set to increase by a further £3.2 billion in the coming year, this is just kicking the can down the road—again, this needs to be fixed.

The Government propose to look at the funding formula and, if I have interpreted them correctly, to focus on deprivation. While this may superficially seem appropriate, in practice the major cost driver of local government is social care, including SEND services, which represents around 70% of cost. This means that the focus should be on population demographics and where there will be the greatest need. Analysis by the County Councils Network and PwC demonstrates that rural areas will see the greatest increase in demand compared to metropolitan areas. We have just finished a debate in this House on rural areas. Can the Minister commit that the Government will look at and consult on the underlying cost drivers before any changes to funding formulae are made?

Furthermore, the Government are imposing a number of additional burdens on councils, including through their children’s Bill, renters’ reform Bill and planning measures Bill. Can the Minister confirm that these additional costs will be fully funded through the new burdens doctrine?

I turn now to the Government’s changes to the funding formula, with the repurposing of the rural services delivery grant and the new recovery grant. The latter is heavily focused on metropolitan authorities, with only three county and rural unitary authorities receiving the grant. I reiterate that 70% of the cost of upper-tier authorities is for social care, which is largely driven by demography. Along with the pernicious impact of national insurance increases on social care providers and charities, this will inevitably lead to further cuts to services.

Finally, I turn to growth and fiscal incentives. There have been few fiscal incentives for growth, but the new homes bonus and the business rates retention scheme were genuine incentives for growth and gave some compensation to communities for the impact of this growth. I add that growth imposes significant additional capital costs on councils, and these incentives were helpful there. The proposals to stop the new homes bonus and to reset business rates are deeply concerning, as they will have significant deleterious impacts on the councils that have done the right thing and supported growth, while benefiting those that have not taken the tough decisions to support growth. Given that the Prime Minister has said that growth is his number one mission, milestone, step and so forth, can the Minister assure the House that the councils and communities that have supported growth will not lose out?

I thank the Minister for sharing this Statement from the other place. I wish her, and the rest of the House, a very merry Christmas and a peaceful new year.

[Baroness Pidgeon (LD)]

I thank the Minister for the opportunity to discuss the provisional local government finance settlement. It is always an early Christmas present for finance departments in councils up and down the country.

Local government was brought to its knees under the last Government, with funding cuts happening at the same time as further responsibilities were given to our hard-working local government workforce. From the Liberal Democrat Benches, we welcome the move set out in the Statement for multiyear settlements—something my party has long called for.

The Statement suggests that funding previously allocated to rural local authorities under the rural services delivery grant will be repurposed under a need and demand basis. This is despite the grant providing rural local authorities with £100 million for the rollout of essential public services, including emergency services and the provision of social care in the last year.

From these Benches, we are concerned that this new system of allocation will not recognise—as has just been discussed—that the sparse and isolated nature of rural areas drives higher costs for the delivery of essential services, creates challenges in the recruitment of staff for key services, and of course requires local authorities to provide a greater public subsidy for the provision of services such as public transport.

Deprivation in rural areas would also likely be hidden through the use of this measure because it occurs over a wider geographical area. Using deprivation as an indicator of demand for services also does not consider local authorities with a higher number of elderly or vulnerable residents and the additional demands these residents place on services, as the noble Lord just outlined in his response.

I urge the Government to provide rural councils with a funding settlement which reflects the impact of the rurality and sparsity of the areas they serve, through the application of the fair funding formula. With additional pressure on councils to deliver further scrutiny in planning decisions, deliver further housebuilding and accept additional NICs changes, it is essential that they are funded robustly to achieve these aims. Can the Minister say what plans the Government have to ensure that local authorities in rural areas have the support that they need? These authorities face unique challenges and their funding settlement needs to reflect this.

We are also concerned about the funding of certain services such as special educational needs and indeed special educational needs transport. What assurances can the Minister give that the new funding settlement will allow local authorities to deliver special educational needs services at the level needed, as well as child and adult social care?

From these Benches we welcome the consultation on wider local authority funding reform, but we urge the Government to move as fast as possible with this, as 2026-27 feels a long time away and, the more time passes, the more the contents of this Statement will feel rather like a sticking plaster. Can the Minister say anything more today about the timescale of the consultation and whether genuine fiscal devolution will be considered, so we are not looking just at how the government funding is divided up but at powers to enable local authorities to raise funding to invest in services and infrastructure for their local communities, rather than always being reliant on the Government of the day?

Finally, given that we are on the final sitting day before the Christmas break, I take this opportunity to wish the entire local government workforce a very happy Christmas, and of course I extend that to all noble Lords as well.