Local Government Finance Settlement

Lord Bourne of Aberystwyth Excerpts

Tuesday 19th December 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, with the permission of the House, I would like to repeat a Statement made by the Secretary of State in the other place earlier today. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on funding for local authorities in England next year. From 2015 to 2020, councils in England have access to over £200 billion to deliver the high-quality services their local communities need. They deserve no less. Local government is the front line of this country’s democracy, with councillors and officers working at the heart of the communities they serve. But to make the most of that local knowledge, councils need greater control of the money they raise, they need greater freedom to tackle challenges in their areas, and they need the certainty and stability that will allow them to plan ahead. This Government are committed to delivering that, and today I am publishing a draft local government finance settlement that marks an important milestone in the journey to doing so. It comes in the third year of a four-year deal that was accepted by 97% of councils in return for publishing efficiency plans. We will continue to work with the sector to help it increase transparency and share best practice, supporting greater progress in delivering increased efficiency over the coming year. I expect this to have a tangible impact on the steps councils take to promote efficiency from 2019-20.

Local government operates in a society that is constantly changing and the system of financing local government needs to reflect that. The current formula of budget allocations has served councils and communities well over the years, but to meet the challenges of the future, we need an updated and more responsive distribution methodology—one that gives councils the confidence to face the challenges and opportunities of the future. So I am today publishing a formal consultation on a review of relative needs and resources. I aim to implement a new system based on its findings in 2020-21.

Alongside the new methodology, in 2020-21 we will also be implementing the latest phase of our business rates retention programme, a scheme that gives local councils the levers and incentives they need to grow their local economies. The aim is for local authorities to retain 75% of business rates from 2020-21. This will be through incorporating existing grants into business rate retention, including revenue support grant and the public health grant. Local authorities will be able to keep that same share of growth on their baseline levels from 2020-21, when the system is reset. From 2020-21 business rates will be redistributed according to the outcome of the new needs assessment, subject to suitable transitional measures.

A number of 100% retention pilots have already been announced, and these will continue. A further pilot will begin in London in 2018-19 and we had intended that a further five pilots would begin that same year. However, interest in the scheme was such that we will now be taking forward twice as many as planned. I am pleased to announce today that the new pilots will take place in Berkshire, Derbyshire, Devon, Gloucestershire, Kent and Medway, Leeds, Lincolnshire, Solent, Suffolk and Surrey. The first batch of pilots are taking place largely in urban authorities; the second wave will mainly cover counties. This ensures that councils right across the country will benefit, that the scheme can be tested in a wide range of environments, and that the benefits of growth are broadly comparable between London, existing pilots and new pilots. We received so many applications to take part that we will continue to pilot business rate retention in 2019-20. Full details will be published in due course.

Over the past year my Ministers and officials have been listening to councils of all shapes and sizes, understanding their concerns and working together to develop ways of tackling them. The result of those conversations is reflected in this draft settlement. For example, rural councils have expressed concern about the fairness of the current system, with the rural services delivery grant due to be reduced next year. So today I can confirm that I will increase the rural services delivery grant by £15 million in 2018-19, meaning that the total figure will remain at £65 million for the remainder of the current four-year settlement.

We have also heard concerns about proposed changes to the new homes bonus. To date we have made almost £7 billion in NHB payments to reward the building of 1.4 million homes. Over £946 million in new homes bonus payments will be allocated in 2018-19, rewarding local authorities for their work in fixing our broken housing market. I consulted on proposals to link new homes bonus payments to the number of successful planning appeals and considered raising the new homes bonus payment baseline. Following conversations with the sectors, I have been persuaded of the importance of continuity and certainty in this area. So today I can confirm that in the year ahead no changes will be made to the way new homes bonus payments work and that the new homes bonus payment baseline will be maintained at 0.4%.

As I set out in the housing White Paper, local authorities will be able to increase planning fees by 20% where they commit to investing the additional income in their planning services. This is a significant step towards addressing the widespread concerns of underresourced local planning authorities. Following discussions with the sector I am also announcing a continuation of capital receipts flexibility for a further three years. This scheme gives local authorities the continued freedom to use capital receipts from the sale of their own assets. This will help fund the costs of transformation and release savings.

One particular issue causing concern for some councils is so-called negative RSG. This is where changes in revenue support grant have led to a downward adjustment of some local authorities’ business rates top-up or tariff for 2019-20. I recognise the strength of feeling in local government around this issue, so I can confirm that my department will be looking at fair and affordable options for dealing with negative RSG and will formally consult on proposals in the spring, so that the findings are in ahead of next year’s settlement.

Of course, anyone who has spoken to anyone in local government will be aware of concerns about funding for adult and children’s social care. That is why, over the past 12 months, we have put billions of pounds of extra funding into the sector, and why the Department for Education is spending more than £200 million on innovation and improvement in children’s social care. At spring Budget, an additional £2 billion was announced for adult social care over the next three years. With the freedom to raise more money more quickly through the use of the social care precept that I announced this time last year, we have given councils access to £9.25 billion more dedicated funding for adult social care over three years. But we also need to find a long-term solution to challenges that are not going to go away. That is why we have already announced that a Green Paper on future challenges within adult social care will be published in the summer of 2018.

Finally, I am conscious of calls for further flexibility in the setting of council tax. While we all want to ease growing pressure on local government services, I am sure that none of us wants to see hard-working taxpayers saddled with ever-higher bills. This settlement strikes a balance between those two aims, giving councils the ability to increase their core council tax requirement by an additional 1% without a local referendum, bringing the core principle in line with inflation. We have abolished Whitehall capping. Under the Localism Act, local government can increase council tax as it wishes, but excessive rises need to be approved by local residents in a referendum. This provides an important check and balance against the excessive increases seen under the last Labour Government, when council tax bills doubled.

This change, combined with the additional flexibility on the adult social care precept that I confirmed last year, gives local authorities the independence they need to help relieve pressure on local services such as adults’ and children’s services, while also recognising that many households face their own pressures. In addition, directly elected mayors will decide the required level of precept by agreement with their combined authorities. I am sure that voters will be watching closely to ensure that this freedom is not abused—as will I.

I can also confirm that the Government intend to defer the setting of referendum principles for town and parish councils for three years. This is subject to the sector taking all available steps to mitigate the need for council tax increases and the Government seeing clear evidence of restraint in the increases set by the sector as a whole. I have also agreed measures with the Home Secretary to make it easier for police and crime commissioners to meet local demand pressures by allowing a £12 council tax flexibility for police services, raising an additional £139 million to support our police.

This settlement recognises the need to keep spending under control while also tackling many of the issues that have been raised by local government over the past year. With two years of real-terms increases in resources available to local government, it will give local authorities the funding and freedom they need to make decisions in the best interests of the communities they serve. It is a settlement that offers councils the resources they need, the stability they have requested and the fairness they deserve, and I commend it to the House”.

My Lords, that concludes the Statement.

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[Lord Shipley (LD)]

My Lords, I remind the House that I am a vice-president of the Local Government Association.

The key test of this Statement is whether the provisional finance settlement will alleviate the general funding pressures facing local councils. I think that the answer to that question is: hardly at all. As the letter from the Communities Secretary accompanying the Statement explains, the resources available for local government will rise from £44.3 billion in the current year, 2017-18, to £45.6 billion in two years’ time, 2019-20. This represents an increase well under the current rate of inflation and does not reflect rising demand to the extent that it should. In recent years, pressures have grown significantly because of year-on-year underfunding. In the end, the question is how much is local government actually receiving to spend overall, and not simply how much is it going to have over the next two years? Nevertheless, I welcome the extra support allocated for rural services and the thinking on the new homes bonus and negative RSG. However, I hope the Minister will be able to say a further word about government thinking on business rates and what their ultimate objective is.

As I understand the Statement, there is to be an extension to the number of 100% business rate retention pilots. At the same time, all local authorities will be able to keep more of their business rate income, equivalent to 75% overall in 2019-20. Alongside this, there will be a new system of fair funding—or at least I assume that that is the objective. That will be introduced from 2020-21. For the new system to succeed it will require redistribution to reflect needs and resources. Will the Minister say a further word about what the Government are trying to do? Are they trying adequately to reflect needs and resources, or are they aiming at 100% business rate retention? If the latter, where will the support needed for poorer authorities come from?

We have heard about the pressures on children’s and adult social care. There is an issue of principle here. This time last year, I said that council tax should not be used to make up deficits in resourcing, particularly as demand rises in children’s services and adult social care. I do not understand why it should take 15 months from the announcement in March this year of some extra central funding for adult social care to the production of a Green Paper in the summer of next year to discuss the problems of adequate funding for adult social care. I think that the problem is much more urgent than that.

To take another example of things happening too slowly, the 20% increase which is to be permitted for planning fees was debated in your Lordships’ House many months ago. There is a demand now for additional planning expenditure, so I wish government could work a bit more quickly in dealing with some of the real problems on the ground.

There is a question about council tax referendum principles and the right of councils to increase council tax by the rate of inflation without a referendum. I would prefer that there were no referendum system at all and that local authorities were freed up to make the decisions they think are right in their area. In the end, they will face the verdict of voters through the ballot box. What is happening is that the Government are increasing council tax further. As I understand it, an extra 1% is to be permitted without a referendum so that, in practice, the rate of inflation is met at least in the next year. This is putting the cost of supporting national services on to the council tax payer. I am not convinced—and I said the same thing last year—that this is the right way to go. Poorer authorities, in particular, have a lower council tax base, so if the aim is to redistribute, simply charging extra through council tax to pay for services in the more deprived authorities seems not to be the right way to go.

Finally, can the Minister confirm that the Government intend to produce a model which is fair? The words “fair funding” were used a great deal this time last year. I very much hope that those words will continue to be used. For funding to be fair, council tax payers must also have fair demands on their wallets. Will the Minister bear that in mind? I hope that, for the rest of this Parliament, the Government will not simply load council tax so that local government receives more complaints because their council has been underfunded by central government for a considerable time.

[Lord Bourne of Aberystwyth]

My Lords—

[Lord Beecham (Lab)]

My Lords—

[Noble Lords]

Order!

[Lord Bourne of Aberystwyth]

The noble Lord, Lord Beecham, is always straining at the leash. I look forward to his contribution later.

I thank the noble Lords, Lord Kennedy and Lord Shipley, for their contributions and send all our best wishes to the noble Baroness, Lady Pinnock, who is unwell. We wish her a speedy recovery.

First, I turn to the points made by the noble Lord, Lord Kennedy. I join him in thanking local government officials who work incredibly hard on behalf of their local councils and, indeed, of us all. I will try to clear up a point he made initially about consultation. The consultation on this local government settlement is open until 16 January. The consultation on the fair funding review is open until 12 March at 11.45 am for some reason. I do not know why it is 11.45 am—but just before noon. It will be looking at relative needs, issues such as deprivation and so on. I can confirm that the intention is to ensure—as I suppose the name suggests—that we have a system that is fair across the board and one that achieves some balance.

I appreciate that they do not totally coincide, but council tax payers often also pay income and other forms of tax, so it is a mistake to see the two as totally separate classes of people—council tax payers on the one hand and those who make contributions to central taxation on the other. They are often the same people and we have to appreciate that these services cost all of us money. This is not to say that there are not important issues to be dealt with and a balance to be struck.

The noble Lord, Lord Kennedy, referred to five new business rate retention pilots. It is actually 10. Through him, I thank Lewisham for being part of this. Indeed, all London boroughs are contributing. We had an incredible response although not, I regret, from Newcastle or any authorities in that area, but we had 240 local authorities wishing to be taken into consideration. The 10 pilots will include local authorities from the relevant areas; in all, I think that 89 local authorities are participating in these pilots. So obviously we will see how those pilots proceed and will hope to gain something from them. Both noble Lords asked about the ability to carry the pilots forward. The intention is to look at the issue in the round.

There was a question about adult social care. The review will report no later than the summer of 2018. I appreciate, and sometimes share, the anxiety to move more quickly than we do, but it is important to get these things right rather than to go quickly. I remind noble Lords—although I am sure they do not need reminding—that this year we have had a general election. That has taken some time out of the process for understandable reasons, as I am sure noble Lords will agree.

The noble Lord, Lord Kennedy, referred to a trial of full cost recovery of planning fees. He has previously raised that issue, and I undertook to have a look at what I thought was an interesting and valuable idea. I assure him that we are looking at that possibility.

In the meantime, we have put an extra £2 billion into adult social care and £200 million into children’s social care, and the Department for Education is looking at that. As I said, the review is due to report by the summer of 2018.

I should repeat—I believe I am repeating it, unless I missed a paragraph in the Statement—that the referendum limit is now going up to just under 3%, so an increase of just under 3% is possible without a referendum. I remind noble Lords that a referendum on this has been held on only one occasion—I think I am right in saying that; I will write if I am wrong—and that was unsuccessful. That perhaps indicates that there is not such an appetite out there as is supposed for council tax increases.

Both noble Lords referred to some of the issues that they welcome. The noble Lord, Lord Shipley, certainly referred to the rural services grant, the new homes bonus, the negative RSG and the pilots, and I very much welcome that. I confirm that we wish the model to be fair. I think that the noble Lord referred to the new burden being placed on local authorities in relation to homelessness, which he said we are not funding. In fact, we are funding it under the Homelessness Reduction Act 2017. That legislation had a broad welcome in this House and was steered through this House by the noble Lord, Lord Best, with government support. We are committed to £71.2 million to help fund the new burden.

If I have not covered all the points raised by the noble Lords, I hope that they will be content if I pick up anything that I have missed in writing.

--- Later in debate ---

[Lord Beecham]

My Lords—

[Lord Bourne of Aberystwyth]

I am still looking forward to hearing from the noble Lord, Lord Beecham. I am sure there will be time.

I thank my noble friend very much for the welcome he has given to the pilot in Lincolnshire, and we certainly look forward to seeing how that pans out. I also thank him for the qualified welcome for the local government settlement from the Local Government Association. I have read its response and it welcomes some of what it is in the settlement. I can well understand its position. It would be most extraordinary if in any year the Local Government Association said, “That’s everything we want”, and my noble friend did not disappoint on that front.

I thank him for the welcome that he gave regarding the new homes bonus. I agree that there is a challenge in relation to adult social care—as I said, we have the summer review coming up—and I also agree that there is a challenge in relation to children’s social care. We have recognised that with additional funding but I note what he says.

I also note what he says in relation to South Holland in general, although perhaps not his request to trial full cost recovery of planning fees. We have not yet agreed to that. It is something that we are looking at, and obviously we would make sure that it went through a proper process if we did agree to it. However, I thank my noble friend for his response.

[Lord Beecham]

My Lords, first, I refer to my interests as a Newcastle city councillor, in which capacity this is the 51st local government settlement that I have had to engage with.

I notice that the Statement bears the heading “Check Against Delivery”. I assure the noble Lord that local government will certainly check against the delivery of the Government’s intentions as expressed in the Statement, and it will certainly hold the Government to account for the consequences of this settlement.

Perhaps I may refer in the first instance to the question of business rates. The Statement says:

“The aim is for local authorities to retain 75% of business rates from 2020-21 … From 2020-21 business rates will be redistributed according to the outcome of the new needs assessment”.


I have two questions about that. First, how far have the Government got in developing a system for equalising—or, at any rate, balancing—the distribution of business rates? Secondly, are they now looking at the position of firms such as Amazon with large out-of-town premises, paying next to nothing in business rates and, for that matter, probably diminishing the return of business rates in local authorities with this new economy that is forming? Will the Government look at the implications of that for financing local government, as well as perhaps in other respects?

There is also a distinct question about the funding of children’s social care, which is said to amount to some,

“£200 million on innovation and improvement in children’s social care”.

The present situation is that the funding is £600 million short of what is required to support the existing services. Even if this £200 million were devoted to closing part of that gap, it would still leave those services substantially underfunded. It seems to me that the Government have not taken the right step in adequately funding what is a crucial service and one which, as my noble friend pointed out, is growing and will be an ever-greater call on local government finances.

I also have a question about the slightly odd wording, if I might put it that way, on page 6 of the Statement, in which the Government announce their intention to give,

“local authorities the continued freedom to use capital receipts from the sale of their own assets. This will help fund the costs of transformation and release savings”.

But if these are capital receipts, they cannot be used for revenue purposes—can they?—which the Statement appears to imply. They can be used for capital purposes which might have marginal impact on the revenue side, but they cannot be used to contribute significantly to the revenue situation.

My noble friend referred to the shortfall in education expenditure, but there is clearly also a significant shortfall in social care, to which the Statement made no reference at all, as he pointed out. That is a serious burden on local authorities. Ultimately, and this is the other side of the problem, that will probably increase the costs for the National Health Service. If local government cannot provide social care, the call on the health service, and in particular hospitals, will grow disproportionately. The Statement makes no effort to deal with that situation.

So far, the check against delivery is not encouraging, but it remains to be seen whether, over time, the Government can improve on what has been a pretty downbeat result for local authorities and, more importantly, their citizens.

[Lord Bourne of Aberystwyth]

My Lords, the noble Lord referred to his 51 years in local government. We know from his contribution today that he has not lost any of his enthusiasm—like a young colt, he was anxious to intervene and make his point, and I congratulate him on that. However, it was the usual dismal litany of matters that he set out, and unlike his noble friend on the Labour side, he did not welcome some of the points in the Statement. Let me try to deal with some of the perfectly fair points that he made, some of which I will respond to, if I may, subsequent to the Statement.

On how far the fair funding review has gone, as I indicated we are opening the consultation today for response by 12 March, with the intention of bringing it in in 2021. Obviously, there is thinking on the broad general principle, but we want to see how we look at issues of deprivation and provide a fair funding formula.

The noble Lord referred to the broader question, which has been raised before, perfectly validly, of online shopping and the fact that there are some very large players such as, but not limited to, Amazon. He suggested that it is perhaps a question of rebalancing some of the ways that we raise money. I will cover that in a letter, if I may, but from memory I think that there is an international aspect to this issue that kicks in in the spring—there is reference to this issue and we are participating in that. I appreciate that that is a rather woolly reference, but I will clarify it in correspondence.

The noble Lord referred to the significant challenge, which certainly exists, in children’s social care and adult social care. We have provided already a precept of 3% from the last Statement a year ago, and we have increased flexibility this year in relation to the referendum, which helps. However, I accept that there is a significant challenge. I accept also that the noble Lord is right to say that we will be checked against delivery.

The noble Lord made a point about capital purposes, and we are both mere lawyers in this regard. However, I think that there is probably some accounting process whereby transformational investment from capital funding, which would help with the revenue side of things, is classified as capital. I suspect that that is the case, but again I will take up that somewhat technical point in correspondence.

The noble Lord is right to refer to a broader consideration of the complex—or perhaps not so complex—interrelationship between the health service and social care and the need to get that right. This has challenged Governments of all colours in the past, but I accept that there is a broader question that we need to look at.

The noble Lord will be pleased to know that, in relation to Newcastle, there is a £2.3 million increase in funding from this settlement, quite apart from the referendum uplift, and a maximum additional funding of £6 million as a result of the council tax flexibility previously announced. I am sure that that is of some comfort.

[Lord Marlesford (Con)]

My Lords, the Statement mentions parish councils,

“taking all available steps to mitigate the need for council tax increases”.

It would help if the Government tried not to impose new costs unnecessarily on parish councils. I refer particularly to the proposal that every parish council, however small, should have to appoint a data protection officer, who apparently cannot be the parish clerk. I declare my interest, having the honour of chairing the Marlesford parish council. We have only seven councillors for 230 people, and our precept is only £2,000 a year. We worked out that if we were to have a data protection officer—who has to be a “qualified” professional—that alone could add 10% to our precept. I believe that that is unacceptable, and I hope that the Government will do something about it.

[Lord Bourne of Aberystwyth]

My Lords, first of all, I thank my noble friend for all that he does in relation to parish councils; they are an important part of the patchwork of democratic participation in Britain and are very much valued. If I may, I will take up his point about the data protection officer and come back to him, because I am not sure of the answer. However, I accept that in a small council a cost like that cannot be easily avoided. If there is some way of mitigating it, I will certainly get back to my noble friend with the suggestion.

[Lord Hussain (LD)]

My Lords, I listened carefully to the Minister’s Statement. Speaking as a former councillor on a local authority for 10 or 11 years, I know that many areas in the country are very deprived. Some of them are not only the most deprived areas in the country, but it is sad to see that in England and Wales we have some of the most deprived areas in Europe. I did not hear much in the Statement about plans to uplift those areas from the deprivation they have suffered for decades.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for the points that he raised. First of all, we are talking here about a settlement only for England—obviously, Wales is dealt with by the National Assembly for Wales. On funding generally for Wales, the noble Lord will be aware of the Barnett formula, which takes account in its own peculiar way of the needs of Wales, Scotland and Northern Ireland. In England, the fair funding formula will seek to address some of the points that the noble Lord quite rightly raises about deprivation. As I indicated in the Statement, it is important that we look at that, and it is now open for consultation until 12 March.

[Lord Howard of Rising (Con)]

Following on from what my noble friend Lord Marlesford said, my parish council is not nearly as big as his. Our annual precept is only £500. Will the noble Lord confirm that, if you do not have any electronic equipment, such as computers, you do not have to worry about the Data Protection Act?

[Lord Bourne of Aberystwyth]

My Lords, that does seem like a very reasonable deduction. I will write to my noble friend if I am wrong, but I think that will be the case. Once again, I thank my noble friend for all he does, and indeed noble Lords around the Chamber who have previously been, and in many cases still are, councillors. That service is very important to people in their areas; it tends to be the most trusted level of government and it is an essential part of our national life.