Provisional Local Government Finance Settlement

Lord Bourne of Aberystwyth Excerpts

Thursday 13th December 2018 Lords Chamber

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

My Lords, with the leave of the House I will repeat a Statement made earlier today in the other place by my right honourable friend the Secretary of State for Housing, Communities and Local Government on the provisional local government finance settlement 2019.

“With permission, Mr Speaker, I wish to make a Statement on funding for local authorities in England next year.

Every day, these councils and the many hard-working, dedicated people who work for them do their communities proud, delivering the essential services on which we all depend and making a difference to every life they touch. It is a privilege to be working with and representing these communities. In doing so, I am determined to ensure that they get the resources and support to rise to new opportunities and challenges, to grow their economies and to ensure that there is opportunity for all, with no one left behind.

The draft local government finance settlement being published today is an important step towards this. Provisional local authority funding allocations will be subject to further review before final settlement, in line with my department’s usual processes. This provisional settlement confirms that core spending power is forecast to increase from £45.1 billion in 2018-19 to £46.4 billion in 2019-20—a cash increase of 2.8% and a real-terms increase in resources available to local authorities.

I am in no doubt about how challenging it has been for councils to drive efficiencies as they contributed to helping rebuild our economy and tackle the deficit we inherited from Labour. That is why I am delighted that the Budget committed around £1 billion of extra funding for local services, with a strong focus on supporting some of our most vulnerable groups. This includes £650 million for adults’ and children’s social care in 2019-20. Of this, £240 million will go towards easing winter pressures, with the flexibility to use the remainder —£410 million—for either adults’ or children’s services and, where necessary, to relieve demand on the NHS. This is on top of the £240 million announced in October to address winter pressures this year.

In addition, the Budget pledged an extra £84 million over the next five years to expand our children’s social care programmes to support more councils with high or rising numbers of children in care. This builds on the good work that my department is already doing through the troubled families programme to improve all services for families with complex problems.

The Budget also provided a very welcome boost for our high streets via a £1.5 billion package of support, including a business rates discount worth almost £900 million and a £675 million future high streets fund to help them adapt and thrive in changing times. In addition, there is a further £420 million to repair and improve our roads this year.

I know and recognise the pressures of social care. I have been working with the Health and Social Care Secretary to take this forward, and the Government will soon be publishing a Green Paper on the future of social care. This is a complex issue and we are working with local authorities, drawing on their front-line insight and intelligence to ensure that we get this right. We have taken this approach across the board, listening carefully to what councils of all shapes and sizes across the country are telling us, and responding.

I express thanks to my Ministers—especially the Minister for Local Government, my honourable friend the Member for Richmond—for all their work on this. As a result, I can confirm that I will increase the rural services delivery grant by £16 million in 2019-20 to maintain it at last year’s level. This recognises the extra cost of providing services in these communities. In addition, I am keen to provide continuity and stability, where this makes sense, by committing up to £20 million to maintain the new homes bonus baseline at 0.4% in 2019-20 to ensure that we continue to reward councils for delivering the homes we need.

There will also be no change to the council tax referendum limits set for local authorities in 2018-19, aside from further flexibility offered on the police precept level. Authorities will have the flexibility to increase their core council tax requirement by up to 3% and can draw, as needed, on the adult social care precept to meet demand for services. But local residents will continue to be protected and will be able to approve or veto any excessive rises in a referendum. Measures that I have agreed with the Home Secretary to allow police and crime commissioners to increase the police precept to £24 will also help them tackle the changing demands they face.

I am also conscious that so-called “negative RSG” remains an issue in certain areas. Having consulted on options for addressing this, I am pleased to announce that we intend directly to eliminate the £152.9 million of negative RSG in 2019-20, using foregone business rates. This will prevent any local authority being subject to a downward adjustment to its business rate tariffs and top-ups that could act as a disincentive for growth. We committed to finding a fair and affordable way of resolving this issue and I am confident that this approach delivers on that.

So we have been listening and acting on what we hear. Nowhere is this more true than when it comes to answering calls from councils, over many years, for more control over the money they raise. Our plans to increase business rates retention to 75% from 2020 does that and more, giving local authorities powerful incentives to grow their local economy.

Under the current scheme, councils estimate that they will receive around £2.4 billion in business rates growth in 2018-19—a significant revenue stream on top of the core settlement funding that I am unveiling today. It is therefore no wonder that councils are queuing up to get involved in the pilots that we have been running to test the new approach. I am delighted to announce that, in 2019-20, 15 new pilots will get under way in Berkshire, Buckinghamshire, East Sussex, Hertfordshire, Lancashire, Leicestershire, Norfolk, Northamptonshire, North and West Yorkshire, North of Tyne, Solent authorities, Somerset, Staffordshire and Stoke, West Sussex and Worcestershire. We will also be piloting 75% rates retention in London and continuing existing pilots in devolution deal areas.

I am also pleased to announce that every authority in England stands to reap the rewards of increased growth in business rates income, which has generated a surplus in the business rates levy account in 2018-19. We are proposing to distribute £180 million of levy surplus to all councils, based on need.

I am aware of a few authorities which continue to undertake significant borrowing for commercial purposes. I share the concern of CIPFA and others about the risks to which these local authorities are exposing themselves and local taxpayers. We are considering with HM Treasury what further interventions may be required.

We are also launching today two further consultations on reforms to the business rates retention system and on the new approach to distributing funding through the review of relative needs and resources. There is little doubt that the current funding formula needs fixing and replacing with a robust, straightforward approach where the link between local circumstances and resources allocated is clear. With these consultations, we are making important progress towards this and towards a stronger, more sustainable system of local government.

Mr Speaker, 2019 is shaping up to be a big moment for local government, drawing together our plans for a new approach to distributing funding and increased business rates retention, as well as the upcoming spending review. No one knows their local area like the councils that are at the heart of their communities. We are supporting them to harness that vast local knowledge and those networks not only to make the best of available resources and increase efficiency but to innovate and improve the way they deliver services.

We are working with local authorities and departments across government to gain a better understanding of how best to promote efficiency. Using this, we will develop a package of support to help councils become more efficient and get better service outcomes. We will launch a continuous improvement tool in spring 2019 and are championing authorities that put communities at the heart of service delivery. The smarter use of technology is clearly pivotal to this and has the potential to be genuinely transformative. That is why the digital declaration launched by my honourable friend the Minister for Local Government to share and spread best practice in this area is so important. It is backed by a £7.5 million local digital innovation fund. I am delighted to say that the first successful bids were announced last week to kick-start projects, led by councils, to promote service transformation.

There is so much excellent, inspiring work under way in our local communities, and it is right that we get behind it and have faith in the authorities which, day in, day out, always deliver. This settlement and the extra funding announced in the Budget reaffirm that faith, delivering a cash-terms increase of 2.8% and a real-terms increase in spending for local authorities in 2019-20; delivering extra support for the vulnerable, for quality public services, for our high streets and for local economic growth; and paving the way for a fairer, more self-sufficient, more resilient future for local government and a brighter future for the people and places it serves. As such, I commend this settlement to the House”.

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[Baroness Pinnock (LD)]

My Lords, I remind the House of my interests as a vice-chair of the Local Government Association and a councillor in Kirklees. I thank the Minister for repeating the Statement on the local government settlement. I am not, however, able to thank him for its content.

The Statement includes the phrase:

“I am determined to ensure that they get the resources and support to rise to new opportunities and challenges … with no one left behind”.


Hmm. The National Audit Office report of March this year gave these stark figures of the cuts in local government spending: a 49.1% real-terms reduction in government funding, and a 28.6% real-terms reduction in local authorities’ spending power. Can the Minister say how a 0.4% increase above inflation, which fails to include considerable rises in demand—for example, for children’s services—is in line with providing the resources needed by local government? In a report this year by the New Policy Institute, researchers estimated that:

“97% of total cuts in spending in areas like adult social care, child social care and housing have fallen on the poorest 20% of councils. This is despite those areas also having a higher number of people in need”.


Will the Minister explain, in the light of this research, how no one is being left behind?

There is universal agreement that there is a crisis in social care funding. The Local Government Association estimates a £3.5 billion gap in funding for adult social care by 2025. Just how this huge gap will be filled is yet to be decided, as the Green Paper on the funding of social care that was first promised in 2017 has yet to be published. Meanwhile, adults are not getting the care they need. What is particularly galling is the Government’s announcement of £650 million, given that the vast majority of it is destined to support NHS budgets.

The Statement makes no reference to one of the largest financial pressures on councils’ budgets: the national pressure on education, health and care plans and statements. From 2014, there has been a 45% rise in the number of young people requiring an EHC plan. As an example, in my own authority of Kirklees, in 2014 there were 1,900 EHC plans or statements. Based on current trends, this is expected to rise to 3,300 by 2022—a 70% increase—while funding for these young people will rise by an estimated 12%.

I welcome business-rate support for town-centre retailers, but I have to point out that this is a sticking-plaster approach when a more radical reform of business rates is desperately needed.

I also welcome the additional allocation of £420 million for pothole repairs. The national estimate of what is needed is £9.3 billion. However, what is really needed is a significant increase in capital funding, as a government-funded grant, so that councils cannot just fill and pack but use funding more effectively by completely resurfacing crumbling roads.

On council tax rises, we no longer hear government Ministers standing up for the “hard-pressed council tax payer”. The reason is clear: the Government have adopted a policy of pushing the costs of local spending on to the council tax payer. In the past three years this will have resulted in a 14% rise, which is obviously well above both inflation and average income rises. Council tax is regressive. It is not linked to ability to pay so the consequence of these successive, well-above-inflation rises is that those least able to pay are seeing a rapidly rising tax demand coupled with rapidly decreasing local services. Perhaps the Minister will be able to assure me that the Government recognise that this is the case and that they once again want to help the hard-pressed council tax payer.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, for their contributions from the Front Benches. I shall deal with their contributions and, in so far as I miss anything or I am unable to answer, I will certainly write to them and place a copy in the Library.

I agree with the noble Lord, Lord Kennedy, about the challenging scenario—that is undoubtedly true—and I join him in the tribute that he paid to the local authority workers up and down the country. As he rightly said, they do a terrific job, as do the councils of all parties and no party. They are essential to the democracy and the system that we operate in the United Kingdom.

The noble Lord referred to deprivation. In the Statement that I repeated, I made the point that the surplus in the business rates levy account is going to councils based on need. It is a point worth making that it is explicit that it is based on need. We operate a system of equalisation and that is inherent to the system so, although it is a regressive system, a corrective mechanism applies, as I am sure noble Lords will in fairness note.

Both the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, made notes about the importance of the council tax contribution, which I fully recognise and acknowledge, but they should recall that there is a referendum limit and that an excessive increase has to be put to the electorate. As far as I can recall, this has not happened recently but it is open to councils if they want to do so; the effect otherwise is to keep council tax levels down.

The noble Lord referred to statutory services. Local authorities provide them par excellence, but it is worth noting that they go beyond that. We all know from our own and local authorities up and down the country what a great job they do. He also referred to the need for help for the high street within the system. Again, I mentioned that a £1.5 billion package of support for the high street has been announced and is within the system. The noble Baroness acknowledged some of the help that is going there. I recognise that it is a challenge but it has been taken up by the Budget and within this Statement on the local government settlement for the next year. I appreciate that some of this has already been announced but it is a requirement that we do this so that councils up and down the country know expressly what they have got to finance services for the next year.

Both the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, referred to the existing social care and NHS challenge and the £650 million that has been committed for the next year. It is a significant sum and, yes, some of it will go to the health service. The reason for that is that it is far more expensive to supply an NHS bed than a place in a social care residence. Therefore, it is desirable that we do that. That is why it is important that our social care review is not just about the financing but the modelling. It is important that we can see the interaction between the two. We all clearly understand it and it is not necessarily easy to deal with, but that is something with which we must grapple.

Although this point was not made expressly by either noble Lords, your Lordships should be aware that the business rate retention applies throughout London and thus in the noble Lord’s area. We have pilot schemes running at 75%, and in Kirklees—North and West Yorkshire has a pilot scheme operating as well. In North and West Yorkshire, if the pilot pool achieves the same level of growth in 2019-20 as happened last year, the area could expect to see an additional £83.2 million compared with the baseline funding level, of which £26.4 million would be as a result of the 75% pilot. It is worth acknowledging these additional factors.

Yes, there are challenges and there are areas where we wish we could do more, road repairs being one, but that is not a problem which has suddenly arisen. Successive Governments have struggled to keep up with the costs. However, in the round, this is a good settlement. It is a real-terms increase across the board, not just a cash increase, and there is much good news in the Statement.

[Lord Porter of Spalding (Con)]

My Lords, I declare my interests as set out in the register: I am the leader of South Holland District Council and chairman of the Local Government Association. I am sure that my noble friend the Minister is probably not keen on me standing up to speak, but for once I will say that this is a good settlement. I have been dealing with these settlements for eight years, and this is the first time that most of our members are complaining that the size of the increase is not enough. In the previous seven years, they all moaned about the size of the cuts. It would be churlish not to acknowledge that at least this is the start of a move in the right direction. The Government should be commended for recognising that we are at the bottom of where we can be.

It is not inefficiencies that are driving additional costs in local government, it is the extra demands being made on services. Some 1,000 extra children a day are being looked at, and there are 5,000 requests for adult social services a day. These are huge costs. However, if we do not get the social services stuff right, all of those costs then fall on the health service. The Minister has already acknowledged that a social services bed is much cheaper than a national health bed. So it makes sense from the taxpayer’s point of view to ensure that we invest as much as possible in preventive social care, rather than in acute care to fix whatever has been broken. It might be a good idea if someone figured out how much of the extra £20 billion that the health service is getting would be better directed towards adult social care, in order to prevent the health service having to take that on. Both Secretaries of State appear to be looking at this.

Will the Minister agree to go back to the department and get his colleagues to lobby every other spending department that gives small sums of money to local government? Let us not let those departments think that they can freeze those sums, and make sure that they are increased at least in line with inflation, because that will put additional funding into the hands of local government.

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend and he is right to say that on occasion, my heart is in my mouth when he gets up to speak, but I always recognise the fairness with which he addresses the issues. I also understand that he speaks from the front line. I recognise, as we all do, the pressures that are on local government. As I say, we really commend the work being done by councillors up and down the country. I think he is being fair when he says that this is a good settlement. I also think he is being fair when he says that we have had some challenges in the past. Perhaps this has to be set against the background of what will be a significant year, because of the business rate retention scheme coming on line, fair funding being looked at and the spending review—outside of what the Chancellor has said is the end of austerity. Given that, we should expect things to ease.

It would be absolutely right to accede to the request of the noble Lord. It is beyond my pay grade to speak to Secretaries of State on an equal basis, but I will certainly pass on to my right honourable friend the Secretary of State his view that other spending departments should be encouraged to look at what they can do because of the demands being made on local government.

The noble Lord, Lord Porter, said that the challenges are due to increased demand rather than inefficiencies. I accept that, which is why the digital declaration in the Statement is particularly important, as is the announced £7.5 million local digital innovation fund, which provides transformation funding for the town planning system in Southwark—the area of birth of the noble Lord, Lord Kennedy. Other similar announcements were made in Birmingham, to look at the way in which Amazon’s Alexa or Apple’s Siri can help with the delivery of some services. We have to think outside the box in innovative ways to make the most of digital services. That point was made in relation to the earlier Statement on police funding.

[Lord McKenzie of Luton (Lab)]

My Lords, despite the Minister’s warm words, is it not the case that by 2020, there will have been a reduction in core funding for local authorities of some £16 billion over the previous decade? Is it not the case that local authorities currently house 79,000 people in temporary accommodation, including 120,000—perhaps even 130,000—children, that they deal with almost 5,000 social requests every day and that 8,000 are being affected by the withdrawal or closure of care homes? Is this not austerity writ large? How would the Minister describe the life chances of young people caught up in this?

[Lord Bourne of Aberystwyth]

My Lords, the noble Lord paints a gloomy picture that does not take account of the current year which, as I said, is a good settlement. I am sure that the noble Lord would acknowledge that. I spoke about the tough decisions and challenges of the past decade, which have coincided almost entirely with the period of austerity that followed the deficit we inherited. We can debate who was responsible for that, but in fairness the noble Lord must acknowledge that massive challenges had to be faced. At last we are coming out of that.

I know that there are housing challenges; in the department, we are seeking to meet them with some imaginative proposals on affordable and social housing, certainly in relation to rough sleeping. Social care is a challenge, which is why we committed the £650 million referenced in the Statement. I recognise that we have to do more for the life chances of people up and down the country who deserve a good start in life. That is why local authorities are to be commended on their massive job throughout what has been a difficult period. However, the period has come to an end and we are coming out of it with today’s Statement.

[Lord Storey (LD)]

My Lords, the Statement says that a few authorities will undertake a,

“significant amount of borrowing for commercial purposes”.

It also states that there is concern from,

“CIPFA and others about the risks that these local authorities are exposing themselves and local taxpayers to”.

Could the Minister write to me, telling me which authorities those are? Could he also tell me what further interventions might be considered? I should declare my interest as a vice-president of the Local Government Association.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for that valuable point. I asked questions about that when I saw the draft Statement. First, I should reassure noble Lords that I do not think that there is any cause for concern at this stage. As I understand it, there are proposals on behalf of some local authorities and one can understand that, where this involves borrowing, it might cause concern because it would be unfair to place this on local authorities and council tax payers if it were to turn south. As the noble Lord—quite understandably—requested more clarification, I will write to him and place a copy in the Library.

[Baroness Neville-Rolfe (Con)]

My Lords, I declare my shareholdings as in the register. As it happens, they are in both retail and digital. I also welcome the overall settlement and the real-terms cash increase of 2.8% announced by my noble friend, particularly at a time of growing demands and a growing population. But, to be blunt, I am not happy with the Budget settlement on business rates and on high streets—and I suspect that my noble friend might share some of my concerns. Large companies such as Debenhams at the heart of my local town of Salisbury need help with their physical outlets, given the ever-growing vibrancy of digital sales and the digital economy.

Better transport is also important to our towns and cities, and indeed to productivity. Could my noble friend give me some examples of towns where the £420 million that the noble Baroness, Lady Pinnock, mentioned will make a difference—and not just to potholes?

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[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend for the points that she makes and the general welcome she gives to the settlement, which is fair and right. I acknowledge the challenge faced by the high streets. I am sure she would acknowledge the help announced in the Statement relating to them. Part of this is because of the changing nature of the high street. We cannot, Canute-like, stand in the way of that. What we can do is look at the position relating to the taxation of digital and online sales. My right honourable friend the Chancellor has announced that he is looking at this. I will not name the companies; we all know them. This is a way to deal with that. It is not inherent to the Statement on local government because that does not relate to general taxation policy.

On money for roads, it is for local authorities to determine how they can repair and improve their roads. There will be more detail on that spending and how that money will be distributed to local authorities in an additional Statement that I hope will supply the information my noble friend needs.

Lastly, my noble friend rightly mentioned Salisbury as an important town affected by policy on the high street. It is remarkable how resilient Salisbury has been throughout the difficult period after the Novichok incidents. The Government have given support to Salisbury to help it through, and I have been in touch with the cathedral on a fairly regular basis to see how the community is faring.

[Lord Greaves (LD)]

My Lords, I remind the House that I am an elected district councillor. Although I am not as excited by the settlement as other noble Lords, my council benefits from a bit of Maundy money above what it thought it would get.

Does the Minister understand that when people talk about the council, look at their council tax bill and say, “What do I get for it?”, a lot of the things that impinge on them directly are provided by local district councils in two-tier areas? I have a huge list here that I will not read out, but it is basically recreation and leisure services, street-level services and community-based problem-solving—town centre problems that directly affect people. A lot of ordinary district councils up and down this country are in dire straits. I would love the statistics that were read out for the average or aggregate cuts to government funding and local authority spending to be the case for the district councils in east Lancashire. They are in a much worse position.

Does the Minister accept that, while there is a bit of sugar on the pill this year, we are in the middle of a three-year settlement where councils all had to sign on the dotted line to say that they agree to it, while it is really asking them whether they want to lose a leg or two arms? The Government have provided a little bag of sweeties this time by saying, “Okay, we’re not going to refuse them”, but unless they tackle these basic-level services that do not fit into the high priorities of social care, health and so on, vital though they are, local government as people know it will collapse in quite a few parts of the country within two or three years.

[Lord Bourne of Aberystwyth]

My Lords, I acknowledge the great role that the noble Lord plays in his local authority district in Pendle and I recognise the great work done by local districts up and down the country. He will appreciate, however, that there are a lot of areas that are unitary, where there is not this two-tier system. A lot of what I have talked about, in answering questions and in the Statement itself, relates to the county councils, but much of this will benefit the district councils, where they exist, such as the business rate retention system. Again, Lancashire is a beneficiary of this and it is worth recognising that as well. I recognise the challenges that exist and I know that many local authorities struggle with the financial position. That said, we need to see how costs may be contained and where some back-office costs can be shared. That need not necessarily be via unitisation; it could be done by sharing some of the costs and back-office functions.

I should also say, on the multi-year settlements that the noble Lord referred to, that many councils—perhaps most councils, most councillors and most people offering services—would recognise their importance and desirability, because it gives a guarantee of how payments and settlements will be made into the future.

[Lord Campbell-Savours (Lab)]

My Lords, despite what the Minister said, there must be a connection between internet sales, tax raising and commercial rates. Will the Minister explain what is going on in that area? Who is involved in this work? Is it the Treasury or is it his department assessing what can be done with internet sales, because of the implications for local government finance? Are hearings planned? Are vast numbers of civil servants involved? Is a process of consultation going on? This is an extremely important area and we should be told a lot more about what is a subject of conversation all over the country. People are worried about the high street and they think that internet sales should be paying more. It would be interesting to know what is going on.

[Lord Bourne of Aberystwyth]

My Lords, I do not disagree with the noble Lord on the importance of the task, but I disagree with him about the forum. This is a Treasury issue. I will write to him, and copy the letter to other noble Lords, to give as much detail as I can on what is happening, but this is a broader issue. I do not disagree with him about the interaction between commercial rates in the high street and the issue about digital and online taxation, but I stress the point I made earlier: there is a movement away from the high street and noble Lords will be aware of that. I am sure we have all used digital services. Yes, there is an issue of fairness and an issue about where the taxation should lie, but I think that gives the answer to the noble Lord that it is the Treasury that is leading on that. I will certainly write to him with more details.

[Lord Lexden (Con)]

Both my noble friends Lady Neville-Rolfe and the Minister referred to Salisbury. Can the Minister give a little more detailed information about the extent of the assistance and support the Government are providing and, most importantly, the results flowing from it?

[Lord Bourne of Aberystwyth]

My Lords, first, my role as Minister for Faith has been mostly pastoral—just to see what attendances at the cathedral and at churches in Salisbury have been like. There was quite a dip after the second Novichok incident, if I can call it that, and there has been some recovery from that. I do not have details of the precise financial assistance in front of me but I will cover those details in the letter that I will send to noble Lords.

[Lord McKenzie of Luton]

Can the Minister help me on a specific point not touched upon to date, which has to do with the introduction of universal credit and the managed migration? As proposed, the timing of that looks likely to mean that people will stay on legacy benefits, including housing benefit, for longer than would otherwise have been the case. To what extent, if at all, was that reflected in the Statement?

[Lord Bourne of Aberystwyth]

My Lords, I confess that I did not come steeped in the issues of universal credit, but the noble Lord is right about legacy benefits and the delay in some of this, including housing benefit still being relevant. If I may, I will write to him with full details of that, because I do not have it to hand.