Local Government Finances

Lord Shipley Excerpts

Thursday 21st March 2024 Lords Chamber

Moved by

[Lord Shipley]

That this House takes note of current local government finances and the impact on local communities.

[Lord Shipley (LD)]

My Lords, I thank all those who are taking part in this debate, and I remind the House that I am a vice-president of the Local Government Association.

We have debated local government funding and the impact of cuts in spending on essential public services on many occasions, but things are getting worse. There is a gap in funding in the face of rising costs and rising demand, and it is widening. In its commentary on the recent Budget, the OBR predicted a four-year squeeze for local government services. It said that local authority funding is due to fall from 7.4% of GDP in 2010 to 4.7% in 2028-29. Indeed, just two years ago, it was only 5.1%. The National Audit Office put it another way: between 2010-11 and 2021-22, the real spending of English councils was reduced by 29%.

Council spending has fallen in all services except social care. At the same time, council tax is having to carry a bigger burden. In 2010, council tax accounted for 40% of councils’ core spending power. It is expected to be 56% in 2024-25. We must conclude from this that the Government have passed on the burden to local council tax payers.

On 26 January, the noble Lord, Lord Markham, wrote to me after a discussion in this Chamber on the proportion of councils’ revenue spending on social care. He said that, in 2022-23, 69% of the discretionary service spending of councils with social care responsibilities was spent on social care of both adults and children. Some have a slightly higher figure than 69%; others, slightly lower. It follows that only 31% is available for everything else. It is simply not enough, and the Government have knowingly let, and are knowingly letting, it get worse. They have been forcing up council tax to meet the rising cost of social care.

Social care has two elements to it—children’s social care and adult’s social care. A few weeks ago, the Levelling Up, Housing and Communities Committee issued a report referring to local authorities’ financial distress and said that one cause was higher spending on children’s social care, with high agency costs, high placement costs and rising demand. I know well that the Government are trying to address that issue, but it needs urgent action and I hope the Government will do that. The number of looked-after children has gone up from 68,000 to 84,000 in the last 10 years. I remind the House that the Children and Families Act 2014 introduced new requirements for additional support, but that has never been properly funded and has not kept up with demand.

The Government’s White Paper on long-term reform of adult social care was published in December 2021. They said that they would set out their plans for adult social care by October 2025—four years’ delay. Meanwhile, the Public Accounts Committee recently said that adult social care demand is not being met. Sir Andrew Dilnot recently said that there has been “no serious addressing” of the problem. Many have concluded that this matter must be decided by all-party agreement, led by the Government. I am clear that that is the right approach. After consultation on an all-party basis, the Government should establish their policy for adult social care and then pay for it, rather than forcing closures of neighbourhood and community facilities and services that are used by everyone.

I was surprised to hear the Secretary of State say, when the final settlement for next year was announced in January, that:

“The Government is committed to continuing to protect local taxpayers from excessive council tax increases”.


I found that a bit rich because, since 2016, the Government have been increasing council tax by 2% a year, compounded, to help pay for rising demand in social care. He went on to say that councils should set out how they will

“improve service performance and reduce wasteful expenditure, for example on consultants or discredited equality, diversity and inclusion programmes”.

The sums involved are very minor compared to the costs of social care. Anyway, in practice, the Government have forced local councils to employ consultants to write all the competitive bids for funding on which Ministers love to adjudicate.

Council tax is regressive and out of date, and there are not enough bands. Some 46% of homes in England—46%—are now charged a higher rate of council tax than Buckingham Palace, which, on band H in the London borough of Westminster, has a comparatively low council tax rate. I was grateful for the reminder about this in the 27 January edition of the Economist. Surely, we need more bands at the top end.

A lot has been said recently about Section 114 notices. We know that several councils face bankruptcy as they try to meet statutory demands and balance the books. One in five says that it is in danger of issuing a Section 114 notice in the next year or two. In the last six years, eight councils have issued Section 114 notices, but it is important not to confuse this issue with the few councils that have not managed their finances well or have made bad investment decisions. They are the exceptions; the real problem is the Government making decisions for local government to fulfil without making the money available to do it—hence all the cuts in a range of discretionary services, of around one-third to 40%, over recent years.

For example, a third of libraries have closed in the last 10 years. Temporary accommodation for people who are homeless now costs £1.74 billion; 104,000 households are in temporary accommodation. We have seen cuts in parks and green spaces, in culture, museums and theatres, in youth services, and in sports, leisure and swimming pools. We have also seen a drop in spending on preventive services that can save money in the medium to long term.

I heard in the news on Monday that half the local road network could fail within the next 15 years. The Local Government Association estimates that there is a £14 billion backlog in local road repairs. To take an example of the Government not funding things, the national living wage will apply in social care and that is excellent to see, but it needs to be fully funded; otherwise, council tax payers will have to make up the difference.

The question for this debate, and for this and all future Governments, is what to do. There is an urgent need for reform of local government funding, and it needs to be done with all-party agreement. We need long-term funding that is not based on competitive bidding. As we have seen, the levelling-up allocations are centrally managed with central deadlines, and only 10% have been spent so far, as the Public Accounts Committee told us last week. Not enough of the projects were “shovel-ready”, and local capacity has not been available because of cuts in funding, so there have not been enough people to do the work to deliver the outcomes. As I say, government deadlines have been far too strict.

What happens now is that we have one-off, sticking-plaster allocations of money. They are not enough, as the recent extra £500 million for adult social care has demonstrated. Local authorities are accused of having reserves that are too big. Let me say clearly that they do not. If I were a chief finance officer of a local council, I would be extremely worried about the projection that the OBR has given of finances for my council over the next four years, and I would want a healthy reserve in place. That is normal—strong reserves are normal for capital investment and for the rainy day that we may well have. Public money requires good stewardship, given the further cuts on the way.

Local authorities need greater freedoms. I have never understood why the Government are so determined not to allow local planning authorities to decide their own fees. Why on earth should they not be able to do that, and recover 100% of the cost of doing it?

We also have to encourage local authorities to invest to save. That requires a national discussion as to how you really can do that—there are things that can be done. If you invest to do something, you will save money in the long term.

We need an acknowledgement that council tax is regressive and needs reform. We need two bands at the top, and quite soon in my view, because otherwise more and more poorer people will pay a higher proportion of their income to support local services.

I have not mentioned business rates. We have had many debates on business rates in this Chamber, and perhaps that is why. It has become a national tax; it is no longer a local tax. I remember when, in my days as a councillor, business rates were managed by local authorities, which decided what the rates were, but that was a long time ago. I repeat what I said during the passing of the Non-Domestic Rating Bill: business rates have simply got too high.

The Government are failing to produce long-term settlements. For the last six years, we have had one-year settlements for local authorities. I do not understand why the Government cannot do better than that. It would really help people to plan.

The Local Government Association has told us that cost and demand pressures have now led to a £4 billion funding gap over the next two years simply to maintain the level of current services, not to increase them. That is a substantial sum of money, and local government finances will be in a precarious state unless action is taken.

I do not want us to end in a permanent state of crisis. With thinking and all-party discussion, that can be avoided, but I wish the Government would do a bit more on audit. The Audit Commission was abolished just over 10 years ago, and I have no doubt that it had suffered mission creep. Equally, I know that having a proper audit system underpinning local government, and feeding information to the Government about how things are going and where extra investment is needed, is really important. In your Lordships’ Chamber, I have previously welcomed the Office for Local Government, Oflog. It should be at the centre of all this but, to be honest, I do not know whether it is. We now have a huge gap in audit, which is starting to cause us some concern.

Finally, we need the fair funding review. We also need to reflect, as we used to, the needs element of local government spending, which has gradually over time been eroded. I hope we will have a helpful debate, and that this Government and any future Government will be able to take action on the things identified by noble Lords. I beg to move.

--- Later in debate ---

[Lord Shipley (LD)]

My Lords, I am very grateful to all those who took part in this debate. I must say, I have appreciated the richness of what we have heard today. I hope that the Government will take note of a lot of the valuable comments made. I pay particular tribute to the right reverend Prelate the Bishop of Manchester, who picked out the five key words in this debate: the impact on local communities. We have a tendency to debate funding settlements and fiscal policy but the impact on local neighbourhoods, people and communities was the objective of this debate.

I listened carefully to the Minister’s reply and was pleased by one thing. I agree about the work being undertaken to make residential placements for children more sustainable; I hope that that is going to be completed fairly rapidly.

The Minister said that there has been no decline in the support for councils by the Government. I do not agree. She quoted a whole set of examples of new things happening across a range of local authorities but, first, you cannot generalise from the particular, and, secondly, they were capital projects. I am talking about the impact mostly on revenue of the switch into adult social care, which is not being recompensed for local community services.

The Government capped local authorities on council tax. Since 2016, they have required local authorities to increase council tax for the social care precept by 2%. Had all that money been supplied by the Government nationally, that 2% each year compounded would have been available for those services to those local communities. The whole point of my debate is trying to point out that we have got out of kilter here and that something needs to be done.

I am very interested in the Minister’s statement about reserves. We used to have clear rules about reserves and contingencies in local government. When we had the Audit Commission, we had all of these things. Given the, I think, £31 billion that she cited, I would love for the Minister to write to me to say what proportion of that is earmarked, what proportion is unearmarked and, indeed, what proportion is actually in-year contingencies. It would be helpful to know that.

I thank everyone for this debate; it has been helpful. I hope that this Government, and any future Government, will listen. I hope that the Government will undertake a fair funding review, which has been promised over so many years but has never happened. At that point, we might get the word “local” back into government.

Motion agreed.