Local Government Finance

Lord Shipley Excerpts

Thursday 17th December 2015 Lords Chamber

[Lord Beecham (Lab)]

My Lords, I refer to my local government interests in the register. I extend the customary thanks to the Minister for repeating the Statement, but I can offer few thanks for the substance of the Statement or the malign effects that it will have on local communities and the services on which they rely. The Minister in a previous life was a highly respected council leader. She has earned similar respect in this House. Not for her the shocking lack of understanding displayed by the Prime Minister in his exchange of correspondence with the chief executive of Conservative Oxfordshire about the impact of government policies on local authorities—supported over the last five years, I remind the House, by the Liberal Democrats.

However, this year's settlement takes us to a new level. A week ago, I spent three hours at a meeting of Newcastle's health scrutiny committee discussing possible cuts in social care and public health provision of an unprecedented severity. The clock is being turned back by 40 years to a time when, as chairman of social services, I helped to transform provision of these key services in Newcastle. A combination of cuts in funding and cost pressures, the latter of which the Government studiously ignore, will next year be reflected in a requirement for the city to save £221 million on a council budget of what had been £280 million in 2011-12. This grim scenario is of course not confined to Newcastle. Councils of all political colours, all over the country, are facing similar pressures, as the Conservative-led Local Government Association—whose chairman is in his place today, and I welcome him—has pointed out. Such pressures are aggravated by new costs such as the so-called national living wage, which will impose a responsibility to pay £330 million extra next year, rising to £834 million by 2020, or the deprivation of liberty assessments amounting to £172 million—again unfunded, like other new burdens.

In his Statement, the Secretary of State declared:

“When local authorities account for a quarter of public spending, it was always the case they would have to carry their share of reducing the largest deficit in post-war history”—

words which the Minister has repeated. In fact, of course, local government has taken the largest cut of any part of the public sector or government departments—and, by the way, the Chancellor has still missed his deficit reduction targets.

In this year again, local government is taking a huge hit relative to other departments. One of the few positives to emerge is that, as the LGA had requested, we will now have a four-year budget. As yet, however, the funding formula remains unchanged, and while revenue support grant will disappear by 2020, it is entirely unclear how the increasing reliance on business rates will work in practice given the wide disparity of such income between different authorities. As yet there are no details of how there might be an equalisation scheme, although I understand that the Government may consult on this.

Moreover, the worrying trend of reverting to a 19th-century poor law system for income support, reflected in the localisation of council tax support, is apparently now to be followed by localising the attendance allowance paid to 1.5 million people over 65 with a disability who need personal care, which costs in total some £5 billion. What assurances can the Minister give about how this sum will be allocated and whether it will be ring-fenced? If it is to be ring-fenced, what is the point of the change?

The decision to allow councils to increase council tax by 2% without a referendum in order to support social care is welcome as far as it goes. However, it does not go very far. In Newcastle, we would raise only £1.7 million, which is a fraction of the cuts that are looming over our social care budget; and of course in a city where 70% of council tax payers are in bands A and B, the 2% yields much less than in other, more prosperous parts of the country. The Government have announced their intention of addressing that issue but it is unclear how they will do so, and after all, councils have little time before they have to announce their budgets. In any event, it is unlikely that a new formula will make a radical difference to the kind of figure I have referred to for Newcastle. Similarly, we await details of changes to the new homes bonus, under which Newcastle and many similar authorities have been net contributors to other, more affluent areas.

Public health is another area in which the Government play the three card trick. Having, rightly, restored public health responsibilities to local government, 42 years after Sir Keith Joseph removed them, this Administration imposed an in-year cut of £200 million in the current year and go on to impose in the Statement and the spending review additional cuts of 3.9% in real terms every year until 2020, which amount to a staggering £533 million. These cuts, moreover, will inevitably lead to greater pressure on the NHS, which is itself facing unprecedented financial challenges.

The Government make much of their devolution agenda. What we are witnessing and what today’s settlement exemplifies is that responsibilities for large areas of public services are being devolved without adequate resources to deliver them. Long on rhetoric, short on cash, the Government will the ends and withdraw the means.

I have sought to exemplify some the problems that my city and my constituents will face as a result of today’s announcement. However, of course, these effects will be felt to varying degrees in most local authorities across the country. The House is fortunate in having among its Members on both the Government and Opposition Benches a number of experienced former council leaders—one of whom I suspect will speak to this Statement very shortly in his capacity as the Lib Dem spokesman on local government. However, it also has several former Secretaries of State, none of whom is in their place today, and with all of whom I used to do battle as council leader and subsequently chairman of the Association of Metropolitan Authorities. I never thought I would say this but I am, to my surprise, feeling almost nostalgic for those days, given what their successors are now doing. The Statement that has been announced today will inflict great damage to local government in this country. I fear that, again, it is a case of the Government passing the buck but emphatically not passing the bucks.

[Lord Shipley (LD)]

My Lords, I thank the Minister for repeating the Statement and declare my vice-presidency of the Local Government Association. One figure missing from the Minister’s Statement was the reduction by 24% of central government funding support for local government over the spending review period. When taking into account the forecasts of income raised locally by councils, the overall position is a 6.7% real terms reduction over those four years. However, that is of course a national figure and will be very different in individual authorities.

I remind the Minister that during the last Government, the National Audit Office consistently warned that the department needed to understand much better the impact of its decisions on local authority finances and services. The Public Accounts Committee, in a report two years ago entitled Financial Sustainability of Local Authorities, identified that while the department collected a significant amount of data from local government, it had not made clear how it would monitor councils’ ability to cope with funding changes. Then, in November last year, the head of the National Audit Office warned:

“The Department really needs to be better informed about the situation on the ground among local authorities across England, in a much more active way, in order to head off serious problems before they happen”.

Can the Minister say what the Government have done in response to the criticisms of both the National Audit Office and the Public Accounts Committee?

Much has been made of the extra 2% on council tax to help maintain adult care services, and there has been an admission that different councils will raise different sums of money from that 2%. In London, for example, Newham will only be able to raise 4.1% of extra funding whereas Kingston upon Thames will have 11.3% extra. What has been done to equalise the cash available in the central allocation of grant to reflect this? I note that in the Statement, the Minister said there will be an allocation of £1.5 billion to complement the new precept and then went on to say,

“that is, more goes to councils that raise least from the precept”.

So far, so good, but does that mean that enough is going to those councils? Simply telling us that more is going to go to them is not sufficient. Will the Minister bear in mind that the total sum being made available falls well short of the £6 billion the Health Foundation estimated will be needed by 2020?

Much is being made of the fact that by the end of this Parliament, local government will keep all the revenue from business rates. I understand that there will be guarantees of continued comparable funding at current levels, but any growth will stay locally. One consequence of that is that poorer areas are likely to get poorer while richer areas, because they can keep an increase in business rates income, are likely to get richer. What is the Government’s policy on equalisation, given that there will be no more revenue support grant?

Finally, earlier this week we heard that inspection figures indicate that the number of children’s services departments rated inadequate outnumber those rated good. This was described by the Government as a failure of state provision, but the implication was that it was all the fault of local government. We have reached a tipping point whereby the availability of money matters, and the Government have an absolute obligation to meet National Audit Office criticisms of their lack of understanding of the consequences of their actions. Government cannot go on requiring councils to deliver more services to more people with less real cash. It is an impossible task; will the Minister care to admit it?

[Baroness Williams of Trafford]

My Lords, I thank both noble Lords. I have been busily jotting down notes and will try to respond to them as effectively as I can.

First, I thank the noble Lord, Lord Beecham, for his gladness at seeing some certainty in the funding over the next few years. Perhaps I may address some of his concerns, particularly about the efficiencies that local government has had to make since 2010 and going forward. Nobody could deny that the efficiencies the public sector has had to make have been, by their nature, very difficult. Everybody in the public sector has had to bear the brunt of the need to reduce the deficit, and I commend local authorities for the work they have done over the last five years. They have been innovative and enterprising, and satisfaction with local authorities has been either maintained or improved.

The noble Lords, Lord Beecham and Lord Shipley, are absolutely right about the revenue support grant. It will reduce to virtually nothing by 2020 and the figure for this year shows a reduction, because of the increasing localisation of business rates. Local authorities now retain approximately 50% of their business rates and they will retain 100% by 2020. Mayoral areas will be able to increase their business rates in due course.

The noble Lord, Lord Beecham, talked about social care. A precept can be raised for social care which will be 2% above the 2% cap that triggers a referendum on council tax. The noble Lord may be interested to know that for Newcastle, this would mean £20.7 million by 2020.

The noble Lord also mentioned the comments of my noble friend Lord Porter. I am sure that in due course my noble friend will want to speak for himself. However, today he said:

“The government has listened to what councils said we need and has delivered. More independence to serve our communities, a fair financial settlement for all types of councils, more resources to help care for the elderly and the certainty of long-term budgets”.

That is really welcome and I wish that it had been in place when I was a leader. My noble friend went on to say:

“This settlement should mark the beginning of a new age of independence and responsibility for local councils. In local government we will make a success of it, building on the hard work of the last five years.

Councils will be in greater control of their own destiny. It is an exciting time to be a councillor and this reform gives us … the biggest chance for a generation to serve our residents in a way that we know best”.

The noble Lord, Lord Beecham, also asked about attendance allowance. We will be consulting on the devolution of that.

The noble Lord, Lord Shipley, talked about the concerns of the National Audit Office and the Public Accounts Committee. Within local authorities there is a Section 151 officer who, every year during the budget process, comments on the sustainability or otherwise of a council’s budget. We believe that local authorities and local areas are best placed to know the dangers or otherwise of their future funding and, to my knowledge, no Section 151 officer has made an adverse statement on sustainability.

The noble Lord also asked about the £1.52 billion to complement the precept. The local authorities that are least able to raise the funding will be protected by a greater proportion of that £1.52 billion. I think that recognises, fairly, that those local authorities still have to provide social care. Local authority leaders have said to us that they need £2.9 billion. We will be providing £3.5 billion over the next few years, so I hope that gives the noble Lord some satisfaction.

The noble Lord also talked about poorer areas being likely to get poorer because of the RSG reducing to nothing by 2020. There will definitely be some form of equalisation. Councils such as Westminster raise well over £1 billion in business rates and other local authorities may see reductions. For the latter there will also be some sort of floor protection through business rate equalisation.