Financial Sustainability (Local Government)

Angela Smith Excerpts

Tuesday 7th January 2014 Westminster Hall

[John Pugh (Southport) (LD)]

I congratulate the hon. Member for Birmingham, Edgbaston (Ms Stuart) on calling this timely debate and on introducing it in a constructive fashion. However, I do not share her enthusiasm for elected mayors, so I must demur on that point.

Several people in the room have probably sat on both sides of the political fence that divides local government from central Government, so they will be familiar with the scenario many of us have had visited on us: we listen to a statement about the local government finance settlement and think, “That’s not so bad,” but when we talk to our borough treasurer, we find that the world has more or less fallen in. I am very familiar with that scenario because my first experience of Whitehall involved coming down to Richmond house to see the now Lord Boateng, who was a Minister at the time. I was castigated on behalf of Sefton council because he felt we had quite enough money to deal with our problems, while we felt the money he was giving us fell significantly short of what he should have given us.

That scenario is fairly familiar, and it is part of a very dishonest conversation that has taken place decade after decade between local authorities and central Government. It is a dishonest conversation about local resources, central resources and their effect on services. All Governments say that the funding settlement is fair and generous in the circumstances and that councils surely have sufficient funding to get by. If Ministers need a further defence, they will point to occasional—or perhaps less than occasional—instances of local authority inefficiency or profligacy. They will then point to some local authority—normally one from their own political party—that does things particularly well and set it up as an exemplar for all others to follow.

Local authorities, in turn, talk about savage reductions, service impairment and the new and sometimes unnecessary burdens that have been imposed on them, but not financed, by central Government. Characteristically, they will accuse the Government of deceitful sleights of hand, favouritism and formula rigging. I think Members will acknowledge—particularly those who have sat on both sides of the fence—that those involved put their side of the case in a very one-sided way.

The past few years have been no exception. It helps local authorities that are making their case to their local populations to blame the Government for the totality of their woes, whether those result from demographic factors or unaddressed issues from years gone by. Most local authorities worth their salt big up the cuts, blame all the financial pressures they face on central Government and try as far as possible to ignore their own failings.

Equally, central Government help themselves by confusing the grant regime, changing the names of the grant from year to year—from revenue support grant, to formula grant, to spending power or whatever—and presenting their case in the best possible way. The Minister and I have had many interesting discussions about whether to describe a local authority’s situation in terms of a fall in its spending power or a fall in its grant. I prefer the latter; he prefers the former.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

The hon. Gentleman talks about authorities bigging up the cuts, but, taking into account all the adjustments he has just spoken of, Sheffield will, by 2015-16, have seen a 50% reduction in funding since 2010. That is not bigging up the cuts; it is the absolute fact. Sheffield cannot go on with that level of cuts to its funding base.

[John Pugh]

I have no experience of Sheffield, but I have experience of my own local authority, and at times it rolls up many years’ cuts into one total figure, as if those cuts were imposed in one particular year. That is par for the course. Equally, central Government will find obvious scapegoats and point to the things such as assets and reserves—they are sometimes usable, but sometimes not—as though they can be regularly tapped.

Such things are all part of the toolkit or the argument, and most people are fairly familiar with them. The public tend not to pay a lot of attention to the debate, and they almost split the difference in many cases, because they are not certain who is telling the truth. They do get exercised when council tax goes up and certainly when services they are particularly enamoured of disappear, but, by and large, they are fairly agnostic on this issue, and they do not always know who should be blamed.

However, the game has now got deadly serious. What has been a familiar scenario over many years is now having a more severe effect. As the hon. Member for Birmingham, Edgbaston suggested, the sustainability of local services and, in some cases, local councils appears to be at stake—there is a fair case to be made in that respect. If we cut through what I described as the usual dishonest conversation, there are four absolutely indisputable facts.

First, in terms of deficit reduction, councils have been hit first—that is not particularly helpful, because they have to work within annual budgets and cannot make plans over two or three years—and they have been hit hardest, as has already been said. The second fact is that the reduction in central Government expenditure is considerable, and it may end up being something like £20 billion.

Thirdly, it is also an indisputable fact that the funding reduction for local authorities is proportionally greater in the poor areas and particularly the metropolitan districts. I take that as an unarguable fact, which we can all acknowledge around the room, although we may want to explain it in different ways. That fact is well documented, and it is what the Rowntree research, the Institute for Public Policy research, the National Audit Office and the Audit Commission report “Tough Times” all say. It is an indisputable fact.

Clearly, one element in it was the initial loss of area-based grants. We could argue that that happened because the previous Government were looking after the local authorities that were most of their persuasion. However, the fall in the less affluent areas, if I can put it like that, is in no way compensated for in its totality by city deals or regional growth funds. Those are often talked of as a compensating factor, but they must be looked at in terms of the general decline in regeneration funding in those areas as a whole. Taking the totality of the issues, I would be prepared to—although I will not—argue that case at length. There is nothing to suggest that things are otherwise; the proportionate reduction in poorer areas is greater.

It would be inappropriate for the Minister to respond, as often happens in parliamentary debates, by saying that none the less Birmingham gets so much per head, as opposed to some other area that he wants to nominate. I assume that we all buy into the assumption that grant support for local authorities must be based in some way on need. Therefore we would expect per capita spending in Liverpool, for example, to be greater than per capita spending in Surrey, and so on.

--- Later in debate ---

[Mr Clive Betts (Sheffield South East) (Lab)]

I congratulate my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) on securing the debate. Reference has been made to the Local Government Authority’s position. It is a good idea to take notice of those who, day to day, have to deal with the problems we are discussing and make decisions in local government. Sir Merrick Cockell, the Conservative leader of the LGA, which has a Conservative majority, has said clearly that the position of local Government finance is not sustainable. I happen to agree with him, and there is cross-party agreement in the LGA. That comes about because, as my hon. Friend has said, local government has been asked to make twice the level of cuts demanded of central Government Departments. Local government services are more important than that, and the extent to which local government services have been singled out for disproportionate cuts is unacceptable.

We can argue about which authorities have had the worst deal, and I certainly argue that those with the greatest needs and traditionally the highest level of grants have had the biggest cuts in their grant. That is not questionable—the figures are there to back it up. Local government generally has a good record on efficiency savings. It has coped with the cuts so far quite well, but we have already seen across the country cuts to community services such as libraries and changes to eligibility criteria for adult social care that are affecting communities and individuals in local authorities of all political persuasions.

We cannot continue on that basis, because it is not sustainable. Cuts that are made one year cannot be simply repeated and enhanced the following year. Every year it becomes more difficult because there is less room for manoeuvre and a lower percentage of discretionary spend that can be cut. That is not a steady state, because more pressure is being put on spending for adult social care all the time. The graph of doom that the hon. Member for Southport (John Pugh) referred to is already there. As cuts are made in spending availability and extra demands are made on adult social care, the amount left for other local government services is squeezed until it becomes non-existent. Adult social care and care for looked-after children ultimately benefit a minority of people, important though those services are, and the rest of the population do not know what they get from local councils because virtually nothing is left. That undermines local democracy, which is very worrying.

The hon. Member for Bromley and Chislehurst (Robert Neill) is absolutely right that we have to look towards the longer term. The Government have done some good things, such as abolishing ring-fencing, moving a little on business rates—I would like to see more—and introducing city deals. The most significant thing they have done, however, is to undermine the basis of local government finance in this country to such an extent that a future Government simply will not be able to come back and build on what was there before.

There has to be a fundamental and radical change. There was a good contribution to the debate from the LGA with the “Rewiring Public Services” document. There was a good contribution from the London Finance Commission. The Communities and Local Government Committee is to conduct an inquiry into local and inter-city financing and how city governance affects other parts of the country. Important elements have been raised for discussion, and I hope we can take that debate forward.

In the meantime, what will the Minister do when a local authority gets into real difficulties? The National Audit Office has been highly critical that the Government have not done an impact assessment on the cumulative impact of cuts to local councils. The LGA has said that 56 councils will spend 15% above their income by 2015-16. What happens if one of those councils gets into serious financial difficulties? Would the Government insist on a council having a referendum if it needed to raise council tax by 20% to make ends meet and to deliver its statutory service? Will the public vote for an increase in a referendum if they know that the Government have section 31 powers—civil servants and Ministers revealed them to the Committee—to step in at any point and give councils extra grant to stop them from going bust? Where do we stand when an authority gets into serious difficulty, whether that authority is Conservative, Labour or Lib Dem, rural or urban, a city authority or a district council? What action will the Government take if a council gets into difficulty, which seems to me to be almost inevitable?

[Angela Smith]

rose—

[Mr David Crausby (in the Chair)]

Order. I plan to call the first Front-Bench spokesman at 3.55 pm, so, with four minutes to go, I call Angela Smith.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

I will do my best, Mr Crausby. I congratulate my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) on her excellent speech, which had depth and context. The only thing I can add on the history of local government is its contribution in cities such as Sheffield and Birmingham to our housing, our schools, our leisure facilities and our libraries. The green legacy, particularly in Sheffield, bears a heavy debt to the history of local government in the area. She succinctly outlined the declining powers of local government over many decades, which was echoed by the hon. Member for Bromley and Chislehurst (Robert Neill).

The case for cities as economic motors was powerfully made by my hon. Friend the Member for Birmingham, Edgbaston. I want to compare Sheffield with Pittsburgh in the USA—she made comparisons with Europe, but comparisons can occasionally be made with the USA. Pittsburgh is Sheffield’s sister city and suffered the same decline in its industrial base, but it is now motoring ahead. Why? It is because Pittsburgh had the powers available to rebuild itself. It has focused on life sciences and hydraulic fracturing—fracking to most of us—and has rebuilt its economic base very successfully. It has managed to tap in to resources made available by the federal Government, but beyond that it has tapped into local resources and rebuilt itself. It stands as a shining example of what can be done when a city is given control of its destiny. It is not just Europe we can look to for comparisons of what can be done; sometimes, the US can teach us lessons.

By comparison, Sheffield will, over the lifetime of this Parliament, suffer a 50% reduction in its grant. Barnsley, the other borough I represent, will suffer a 41% cut over the same period. The contrast between what is happening in some of the great cities of the world and what is happening in the UK could not be greater. People living in Sheffield and south Yorkshire more generally feel emotional and strongly about the loss of their industrial base. Something has to be done to rebuild the economy of south Yorkshire. Even the boroughs of Barnsley, Rotherham and Doncaster would acknowledge that Sheffield has to be at the heart of that regeneration.

The myth about the rural and the urban needs to be scotched. Some 70% of south Yorkshire is rural, but it is within a metropolitan area. It has suffered declines greater than Herefordshire, Worcestershire and other areas in the country. I do not want to pitch south Yorkshire against other parts of the country, but south Yorkshire and areas like it helped to build the UK’s industrial base, and they have the capacity to do that again. The role of local government in that is critical. Local government as we know it is broken for ever. The model has gone. Devolution has to be at the heart of the solution for countries and regions such as ours. For Birmingham, for south Yorkshire, for Greater Manchester, for Newcastle and for the north-east, we have to have devolution and a different model for delivering local government in future.