Government Spending Review 2013

Lord Shipley Excerpts

Wednesday 3rd July 2013 Grand Committee

[Lord Shipley]

My Lords, I am grateful to my noble friend Lord Higgins for raising the Open University, which requires me to declare my interest as a pension holder of that institution after some 34 years’ service. I am very glad that Mrs Thatcher had the common sense not to take my noble friend’s advice, because as we all know the Open University has been the most enormous success and a world beater and world leader. It is a tribute to all those involved in setting it up and making such a success of it.

I should declare that I am a vice-president of the Local Government Association. As an adviser on cities and deputy-chair of the regional growth fund advisory panel, I strongly welcome the Government’s direction of travel on local growth. I wish to comment on some strategic issues on public service reform which I hope the Minister will consider.

I start with the Scottish referendum on independence. In last week’s debate on the Select Committee on Economic Affairs report on the economic impact of independence on the United Kingdom, it was explained that while we know the public expenditure level on Scotland, we do not know the amount of tax raised in Scotland; the data are not collected other than on a UK-wide basis. There have been some private estimates, notably by Oxford Economics, as to the tax raised. In the context of all that the Government are now doing on devolution, decentralisation and the single local growth fund, the tax raised for the constituent parts of the UK needs to be known. Part of this is about how you measure success. We will certainly have a single local growth fund between 2015 and 2020 and the Government will have to measure success, and one measure will inevitably be the tax generated from growth. You have to have a base and work has been done with Greater Manchester on its city deal and the earn-back model, which I understand has now been agreed. Hopefully, that will be an exemplar of how tax can be measured.

The spending round has been difficult and we all understand the reasons for that. If there is a headline cut of 10% in local government, for authorities that have social care responsibilities—notably the counties and unitaries—the real reduction is 2.3% because of the extra £2 billion allocated to local authorities. I make the point to the Minister that if you ring-fence the National Health Service and are content with that, you have to ring-fence health more broadly. If you do not prevent ill health through the social care system, you end up with a cost landing on the National Health Service. I am pleased that the £3.8 billion in total in the spending review that has come to the health service and local authorities is extremely helpful. I hope that if the health service continues being ring-fenced, social care will be ring-fenced as well.

I have noted that there will be a council tax freeze for five years; of course, that depends on local authorities deciding to freeze their council tax, which will be up to them. I observe, however, that when central government permits a freeze of council tax, certainly over a period as long as five years, it makes local government more dependent in the long term on central government. I am not sure, given the Government’s direction of travel towards raising more tax locally and people being more responsible for their spending decisions locally, that there should be such central control of the allocation of money.

I believe strongly in localisation. I also believe strongly, for the avoidance of doubt, in the equalisation of funding on the basis of need. It is difficult to do either properly without knowing more about the tax base of an area to which power is being devolved. In England it is difficult to localise without knowing the current level of public spending in each area, either of local government—a council—or of a local enterprise partnership. Data are not being collected on that basis. They are collected on a regional basis, but they will have to be collected on a different basis to make devolutionary centralisation meaningful.

Data on tax income by local government area are simply not available at all. I hope that as part of public service transformation, the Minister will take on board the need to improve the tax income and public spending data which the Government produce. This is caused not least by the fact that community budgets—the tri-borough pilots in London, Essex, Greater Manchester and Cheshire West—have shown significant signs of savings being generated if public services can be planned together. The numbers are actually very large indeed. I am much encouraged by that. However, while this is partly about integrating health and social care it is also about integrating the work of the Department for Work and Pensions with the work of local authorities and local enterprise partnerships.

As a crucial step, I ask the Minister to look into the concept of total place accounting, which is not the same thing as total place spending. However, at the moment, departments, local authorities and those spending public money in a given locality are not accounting for their expenditure on a local basis. It is going to be important for all service providers in a local area to account formally for what is spent by them in that area and then to produce accounts that demonstrate that. It is two years before we get into the single local growth fund, but improving the data is starting to matter.

That takes me to the concept of the local treasury, because community budgeting is about all the funds available in an area for public investment to be jointly spent as a community budget. For a local treasury to succeed, we need to know what tax is raised and what public money is spent in an area, and then consider the gap so that a needs-based funding system can be applied.

According to the Local Government Association, which revised its figures yesterday on the basis of the spending review announcement, the position for 2015-16 is that some 56 councils in England will have only 86% of the money they need to meet existing commitments in 2015-16. One of the consequences will be a lowering of investment in prevention. You will see that happen despite the extra money going into social care. As I have said, if you do not prevent, you end up with a higher cost later. I have therefore concluded that community budgeting is the answer. There are other possibilities, and I fully understand why the Government do not go down the route of unitary councils in all parts of England. It is nevertheless my view that there are significant savings to be made by local government in the creation of unitary councils. I come from the north-east of England where we have only unitary councils. Some of the savings are demonstrable. The issue is, however, complicated, and such a move needs to be done with the will of those participating. Nevertheless, some of the financial problems that have been caused in some local authorities will mean that we need to do that.

I ask the Minister to read a report called Rewiring Public Services, launched yesterday at the Local Government Association conference. It is a hugely important read that extends the debate about how matters could be progressed. Here is a fact that is telling. By 2018-19, on current projections, council tax and business rates will total more than local government spending on services, excluding schools. We are close to making the central government grant obsolete and we could plan now to move away from local taxes being controlled in Whitehall towards financial independence of the sector, which itself is responsible for redistribution to meet needs. That whole issue could benefit from further work. I mentioned the local treasury concept, which would have at its disposal all the various pots of money and make the local spending decisions. A local treasury could have the power to create specific local taxes.

Finally, my noble friend Lady Kramer talked about housing. It is right to increase the housing borrowing cap for local authorities. The average debt on a council house is £17,000. There is significant headroom. We could build many more social homes by permitting local authorities to borrow more. Since April last year, the housing revenue account has been a trading account and we are the only EU country that treats borrowing in the housing revenue account as public borrowing. That need not be the case and we could build 20,000 or 30,000 houses, maybe more, if that borrowing cap were to be increased. I hope that the Minister will think further about that.