Financial Sustainability (Local Government)

Baroness Stuart of Edgbaston Excerpts

Tuesday 7th January 2014 Westminster Hall

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

This debate is about sustainable local authority funding. It is my contention that it is neither sustainable nor local, and it certainly does not confer any authority. I will focus on our cities, not because I want to set up an argument between urban and rural areas, but because what is bad for our cities is bad for our urban areas. If our cities do not do well, rural areas will suffer.

Our cities do not reflect the national economy; they are the national economy. If our cities do not do well, the country will do not well. If we do not generate growth, the rest of the country will suffer, and one certainly does not generate growth by throttling one’s engine. Our cities are competing not with rural areas, but with other cities internationally. Cities are a complex system, even though Whitehall treats them as though they are only complicated. Jet engines are complicated; they are predictable and have predictable outcomes. Cities are complex; their outcomes cannot be predicted, and the players are not always rational. Above all, cities are systems that can come up with their own ideas and solutions to problems, if given permission to do so.

England is the most centralised country in the world—something that holds back our cities, stymies growth and productivity and produces poor value for our public services. Our cities were once great—Birmingham MPs will certainly be aware of that—but their power has continuously reduced since the 19th century and there has been a shift toward the centre. The most radical power shift probably came in the 1980s, when rate capping and financial penalties were introduced. Then, in 1986, the Greater London council and the six metropolitan counties covering England’s largest cities were abolished.

It is worth looking at the continent, where things are different.

“Every city outside the capital in Germany has GDP per capita above the national average, they are dragging the national average up. In Italy it’s six out of the eight, in France all are at or above the national average. We are the only country in Western Europe where, apart from Bristol, the level of the eight cities are some way below the national average and therefore are bringing down the national average of GDP per capita.”

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On resuming—

[Ms Stuart]

Those were not my words—the comparison of England with France, Italy and Germany —but the words of the Minister of State, Cabinet Office, the right hon. Member for Tunbridge Wells (Greg Clark), who has responsibility for cities.

Previously, the Labour Government embraced devolution. We devolved power to Wales, Scotland and Northern Ireland, and we restored London’s city-wide government in 2000, led by a directly elected executive Mayor. England outside the capital, however, remains unfinished business. It is a shame that the Government imposed police and crime commissioners, but presented us with a rather botched referendum on directly elected mayors in some of our cities.

I regret that our major cities do not have directly elected mayors, because such leaders need the support of the whole electorate and not only a small cabal of their own councillors. They need authority. To be frank, the names of the leaders of the core cities ought to be rolling off the tongue in the same way as we can name Cabinet Ministers, but they do not. Running a city the size of Birmingham is probably a far more difficult task than many a Cabinet post, yet we do not give those leaders the political authority that they ought to have.

A small way to remedy the situation, citing the noble Lord Whitby of Harborne as a precedent, might be for retiring council leaders to join the House of Lords, giving some representation for local government. I am not sure that the Mayor of London would be terribly keen on a place in the House of Lords after he finishes his term, but it is worth a try.

My second contention is that local government funding is not actually local. To quote again from the cities Minister:

“At the root of the problem is a lack of local control over the cities’ own affairs and spending”.

When talking about taking up his post, he said that he had to do two things, the first of which was

“to persuade the Cabinet to accept the principle to have licensed exceptions to national policy”,

so that cities could come up with their own way of dealing with things. If I remember rightly, in questions to the Deputy Prime Minister today, a number of Members also suggested that the presumption about deviations from national strategy should be that they were allowed, rather than having to prove the case.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I congratulate my hon. Friend on securing the debate and making such excellent points. In response to my recent debate on local government finance hold-backs, the Under-Secretary of State for Communities and Local Government, the hon. Member for Great Yarmouth (Brandon Lewis), who will respond to this debate, claimed to be freeing local authorities to stand on their own two feet. Does my hon. Friend agree that it is the height of hypocrisy to claim to be freeing up our great cities when actually the Government are taking key powers into Whitehall, such as on inward investment, housing, skills, economic development and European funding?

[Ms Stuart]

Indeed, and I shall make that case with regard to Birmingham. Presumably, a true liberal regards the freedom to fail as a freedom, and that is one of the freedoms that our cities have been given.

The cities Minister also said:

“The second thing is to liberate from the central government barons funding that can be better spent locally.”

I cannot improve on his observation. Quite a number of colleagues will agree, in different ways, that the current funding structure is not sustainable. If there were some great vision of how our cities can succeed, we could engage with that, but what is happening at the moment is that, to quote Sir Albert Bore, the leader of Birmingham city council:

“Politicians in Westminster are systematically dismantling services that maintain the very fabric of culture and community here.”

Birmingham’s total budget for 2013-14 was £3.4 billion. That sum has to cover a whole number of things that the council must do and a number of things that the council might do. The money comes from a variety of sources, and the structure of the system is virtually impossible to explain to our voters.

I am wary of quoting figures, for two reasons. One is that we throw the words “millions” and “billions” around as if the difference is a change of just one letter. I have always found it useful to remind myself that 1 million seconds is 11 and a half days, whereas 1 billion seconds is 31.7 years. There is a massive difference. The second reason is that whenever I think I have a handle on the cuts, things change. I turned on the television yesterday and found that the Chancellor was in the west midlands announcing another £25 billion of cuts. I am not entirely sure where they will come from.

The latest figure for Birmingham is that we need to find savings totalling just under £840 million between 2010 and 2018, including £120 million of cuts in the financial year 2014-15.

[Mr James Gray (North Wiltshire) (Con)]

The hon. Lady is making a powerful case for maintaining local government funding across the nation—not just in cities, but everywhere else—but I have one question. Those cuts are necessary because of the financial situation that the Government found themselves in three years ago. Would she prefer savings to come from local government or national Government, and, if the latter, in what areas?

[Ms Stuart]

That is a fair point, but as I will come to later, by the end of this Parliament local government will have taken 33% of the cuts, whereas Whitehall will have taken 12%. I will also suggest some ideas that would not be robbing Peter to pay Paul but would instead give greater liberty, in a managed way, to our cities to survive. At the moment, those areas in the greatest need are being cut most.

This might sound slightly boring, but let us look at the figures per dwelling. In Birmingham in 2014-15, using the Government’s preferred measure—that of spending power—we will lose £145.59 per dwelling, a cut of 5.3%. The national average is £71.58. Leafy Wokingham—Wokingham is not popular in my constituency because of the comparison, although one of my local councillors comes from there and takes slight umbrage that we keep quoting it—gets an increase in funding of £5.20, or 0.3%. In 2015-16 it will be even worse: Birmingham will lose 5.6% and Wokingham will have an increase of 3%. There is a whole list of shires and counties that are also getting an increase. At every turn, the combination of grant reduction and budget pressures widens to the point where—let us be clear on this—it is no longer a question of cutting services: some services simply will not be delivered.

[Lilian Greenwood (Nottingham South) (Lab)]

My hon. Friend is setting out an important case. Does she agree that the issue is not just the impact of cuts on local authority spending, but the cumulative impact when taken along with welfare reforms, which tend to hit our most deprived cities the hardest? That combination is having a detrimental impact on local economies.

[Ms Stuart]

Absolutely. I have a couple of specific questions for the Minister that will help me outline how we can minimise further cuts.

In answer to a question on 18 December, the Minister suggested that Birmingham should

“be more efficient with its back office, and look at how to use its reserves to invest for the future.”—[Official Report, 18 December 2013; Vol. 572, c. 750.]

I had a chat with people at Birmingham city council about how much it spends on its back office services. It has already made some cuts to them, and will go on to make some of the largest single cuts in 2014-15. However, even if Birmingham were to remove its back office services entirely, it could not meet the required cuts for 2014-15, let alone those for 2015-16.

That puts me in a rather unusual position, in that I am at one with the noble Lord Heseltine. When he addressed the 200th anniversary dinner of the Birmingham chamber of commerce in April 2013, he called for no less than a “peasants’ revolt”, and I agree that that is what is needed. His definition of a peasants’ revolt was a reallocation of power back to the people who created the wealth in this country in the first place.

For that, we require three elements. The first is more control over the money received from central Government and—this is an important point—a time scale that allows for proper planning. At the moment, cuts are being imposed so quickly that local authorities, whether in cities or rural areas, have not had the time to reflect properly on how best to reorganise. In some areas, we even find confusion over which duties are statutory, because some statutory functions have been farmed out—councils have found that when they cancel the contracts, they are in breach of their statutory duties. The second element is greater freedom over the money raised locally, and the third is the means to benefit financially from investments and savings made.

However, I do not believe that that will be sufficient. Something far more radical is required. Relying on council tax to raise revenue will help only affluent areas. Capping via referendum and the utterly out-of-date banding system mean that, for authorities that rely heavily on central Government grants, relying on council tax to raise revenue just makes the situation worse. We need a more radical idea. We could raise a local tax or look at a system of apportionment of locally raised VAT to replace the grant. At this stage, I am simply looking for the Minister to acknowledge that if he continues on the current trajectory, some of our cities will go to the wall. I do not say that to be dramatic; the statement is borne out if we look at the figures.

I also have a number of specific questions. First, on the better care fund, am I right to assume that, although NHS transfers across clinical commissioning groups, which start in 2015-16, will not overtly redistribute funds from rural to urban areas, they will end up doing so in practice, given the age profile of rural areas? The better care fund is not new money, but a kind of redistribution. In Birmingham, almost 46% of the population is under the age of 30, compared with 36.8% in England as a whole. In contrast, Birmingham’s over-65s represent 12.9% of the population, compared with 16.9% in England as a whole. If we focus on the older population, therefore, we will be disproportionately hit.

The second question is about education. Education funding was not part of the local government finance settlement, because it comes mainly through the ring-fenced dedicated schools grant. However, the current formula is historic, and a consultation is going on. When can we expect the result? Will it include a minimum funding guarantee that protects against losses at a per-pupil level? Next year will be a crunch year for our cities and local authorities. Unless they have some indication of how not just the known grants, but the ones that underpin them, will play out, they will not be able to plan.

That takes me to my final observation. The Local Government Association already says some councils are not viable. How many councils does the Minister think are in that category? Does he agree with the work done by the Mayor of London, which suggests we should hand tax-raising powers to England’s largest cities? Will he give English cities control of the revenues from all property taxes, such as stamp duty, council tax, land tax and business rates? One thing is for sure: they will manage those funds differently and, I would contend, better. Will he also lift the cap on local government capital borrowing? I am not for one moment saying that local authorities do not need renewing or that some of the funding structures do not need to be looked at. However, that needs to be done in a planned and sustainable way that allows authorities to respond positively.

Finally, I invite the Minister to come to Birmingham, because 2014 marks the 100th anniversary of the death of Joe Chamberlain—the man who introduced the concept of good governance into our cities. If we do sit down and talk together about some of these structures, I hope we can come up with a way of maintaining the strength of our cities, rather than marking the 100th anniversary of Joe Chamberlain’s death by killing our cities with 1,000 cuts.

[Several hon. Members]

rose—

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[Jesse Norman]

I am arguing that the situation in Herefordshire is the result of well over a decade—possibly two decades—of underfunding and that therefore, although every area has been hit badly because that is the nature of the tough times we are in, the case for treating with care and attention areas that have suffered from that inherited imbalance of underfunding is clear.

Let me give an example. In many parts of the country, local councils have reserves—indeed, large amounts of reserves that they have stored up over many years against a rainy day. That is not true in Herefordshire. Herefordshire council is only 10 or 15 years old. It does not have large inherited reserves. All the reserves it has are spoken for, more or less, and therefore it is not in the position that some cities are in of being able to draw on inherited reserves.

[Ms Gisela Stuart]

Will the hon. Gentleman give way?

[Jesse Norman]

I am winding up my speech, but I defer to the hon. Lady so much that I am happy to take her intervention.

[Ms Stuart]

I am exceptionally grateful. The hon. Gentleman mentioned that Herefordshire is a relatively young county. Is not that the problem? When there was a split between Herefordshire and Worcestershire, there was always a debate about whether they were big enough to be sustainable local authorities. Do not some of the problems in his area relate to the question whether the size and configuration of local authorities is optimal?

[Jesse Norman]

Of course, that point would be much stronger if it were ever true that Herefordshire had received anything like a fair level of funding relative to its comparators. Unlike, I think, most other hon. Members, I have the facts and the evidence in my hands and on my iPad if anyone would like to check them, so we can be quite precise about it.

My final point has to do with reserves. Herefordshire does not have huge reserves. It has virtually no reserves and an embedded underfunding over at least two decades. In that context, the Government’s efforts to level the playing field, if that is what they are, are to be welcomed, because that is doing a difficult thing in unusually difficult circumstances. I am grateful to the Minister and his colleagues and hope that they will continue to look closely at this issue and at the disparities between different authorities as reflected in their reserves.