Local Government Funding

Baroness Keeley Excerpts

Monday 6th December 2010 Commons Chamber

[Simon Hughes]

No, the hon. Lady entered the Chamber only a few minutes ago and has already intervened twice, and I want to deal with the contributions that have been made.

Most councils wait until the provisional settlement, which will be announced next week, after which they make representations if they feel it is not fair or appropriate, and then there is a final settlement. Of course there is planning for a budget, but today’s debate is an opportunity for us not to be doom-mongers about decisions that have not been taken, but to make sure we put cases and arguments publicly, that some of us have been making to Ministers and colleagues privately, as to what we believe will be the best possible settlement in the difficult financial circumstances of the time.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

As the hon. Gentleman is accusing the Opposition of saying things in a particular way, we must be clear that local councils have been pleading with Department for Communities and Local Government Ministers for a steer on this because of the unprecedented level of cuts. The comprehensive spending review clearly shows front loading, yet the Secretary of State today still calls that fiction and will still not answer questions. Does the hon. Gentleman not agree that it is right that when councils ask for a steer they should be given a steer, yet we are still not getting a single answer from Ministers?

[Simon Hughes]

Of course councils make representations both collectively and singly and, understandably, once councils of all parties, including those run by Liberal Democrats, heard the announcement of the CSR in October, they told the Government that they thought the front loading of the four-year settlement was not as desirable as a more evenly spread reduction. I share that view. I intervened on the Secretary of State asking him if there was an opportunity to have a flatter reduction over the four years. He did not give a final answer because, of course, that is a decision that will be left until the formal announcement, but he indicated—I agree it was not definitive—

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[George Hollingbery (Meon Valley) (Con)]

I pay tribute to the hon. Member for Liverpool, Walton (Steve Rotheram), who spoke with real passion for the area he represents. None of us would expect anything less of hon. Members than to defend the areas that they represent. However, there is no doubt that some cuts had to be instituted, as those on the Opposition Front Bench admitted. There would have had to be cuts, whoever was in control.

In the comprehensive spending review, my right hon. Friend the Chancellor outlined a programme of cuts and spending changes that would allow us to put the country back on a firm footing, among which were changes to local government funding. I know that my saying this is likely to arouse groans from the Opposition Benches, but there is no doubt that, as the Secretary of State pointed out earlier, if changes are to be made to the amounts paid to local government, the period in which they are granted and the amounts in each period, Opposition Front Benchers will have to identify areas elsewhere in Government they would cut. It is no good saying that there are no consequences; there plainly are.

Government Members could talk eloquently about closing hospitals and about body armour for soldiers. I shall not use that ploy, but something will have to give somewhere if we change the numbers for local government.

I shall address one or two of the points made in the document from SIGOMA. I entirely understand why an organisation of local authorities should get together to try to defend their position. Clearly, that is the right and proper role of local authorities in the current circumstances, but one of the points made in the document is about the imposition of floors. I think I am right in saying that the right hon. Member for Greenwich and Woolwich (Mr Raynsford), the former Local Government Minister, was responsible in 2002-03 for the imposition of the floors, which protected some local authorities from huge reductions in local government spending as a result of the formula having changed enormously. The floors have remained until the present day, so any disparity or inequality that might be felt across local government has been entrenched by that rule, which resulted from enormously complicated changes in local government funding rules. It is therefore very difficult at this stage to imagine that in one fell swoop we on the coalition Benches will even out the inequalities created over the past 10 years.

It is reasonable to question the funding formula itself. It has changed a great many times, as hon. Members will know, resulting in enormous confusion across many local authorities and, in my part of the world in particular, a real reduction in funding over a great many years. I have already mentioned some of these examples in the House, but East Hampshire district council saw a real-terms funding reduction of 25% from 2001 to 2010, while Havant borough council saw a 13% real-terms reduction. Havant council has almost no assets. It is not a Wandsworth or a Westminster, with a huge parking income or buildings it can rent out to third parties; it is a straightforward council that takes in council tax and receives grant from the Government, yet its funding has been reduced by 13%.

[Barbara Keeley]

Would the hon. Gentleman like to inform the House what the balance is between the formula grant and the council tax base for those councils? That is one of the big disparities, and it is not helpful to talk just about the formula grant, because many councils in places such as Surrey and Hampshire have a good, substantial council tax base.

[George Hollingbery]

I absolutely understand what the hon. Lady is saying. If I remember rightly, the SIGOMA report includes a table—I think on page 4 —of the differential rates of council tax between authorities. I cannot tell her exactly what the numbers are, but the overall band D council tax charged in East Hampshire, taking in the Hampshire county council precept and the local parish precepts, is higher than in the SIGOMA authorities. There is already a disparity in the amount that local citizens pay in my part of the world towards the funding of their councils, which is taken into account in the grant settlement, as I understand it. As I mentioned in my earlier intervention—I apologise again for making it overly long, Madam Deputy Speaker—the amount for Hampshire county council reduced by £45 million between 2003-04 and this year, and it is expected to reduce by a further £20 million over the next several years.

Those are not the only sources of funding for local government—there is the business rate and council tax. The UK Statistics Authority says that 56% of local council revenues comes from the council grant. If we apply the cut that the Government propose to that 56% and look at the totality of what local government takes in, we find that the cuts amount to about 14%, or 3.3% a year. The Government have been brave and transparent in talking about the totality of cuts to the revenue grant allocations, because the cut across local government is rather less.

Furthermore, an article in the Municipal Journal from 4 November last year said that studies of Total Place had suggested that only 5% of all spending in a local area comes through democratically accountable bodies, which leaves 95% to come from central Government—funding that can continue to be spent without the cuts applying, even though there may be cuts elsewhere. Therefore, a lot of the talk that we have heard—about fire and brimstone, a cleansing across local government, and local businesses going out of business because there is no longer any money—needs to be taken in that context. Plainly, a great deal of Government money is still spent locally.

One or two points have been made about the Government not doing anything to help local businesses. Indeed, the converse point—that the cuts will have a disproportionate impact on areas with high local government employment—has also been made. The Secretary of State did not mention it, but the Chancellor has provided for national insurance contributions holidays, which are granted to small business formations and are specifically targeted on areas with high levels of employment in local government—or, indeed, in government across the board. The Government have therefore taken into account the fact that, although there will be cuts in local government, new business formation will be important. Much as many of my colleagues in the south-east would like the NIC holiday to come to the south-east, we have at least some understanding of why it is not.

I do not for a moment misunderstand the fact that anybody who loses their job faces a difficult time, particularly in the current conditions. Therefore, I take seriously the loss of employment in local government. However, it is also worth pointing out—to use the cliché—that when it comes to innovation, necessity is the mother of invention. De-ring-fencing has allowed local councils a world of flexibility to find new ways of doing things: to work differently with partners, and to take budgets that were predicated on particular activities occurring in a certain way and use them differently.

Various representations have been made to the Select Committee on Communities and Local Government, from people across the country and across many subjects, but I was particularly struck by one contribution—I think it was about Birmingham; it could have been about Manchester. [Interruption.] Opposition Members will have to forgive me—we have had many representations. Some 15 or 20 agencies were offering similar services to the local population. If we have such duplication of services in local councils—and I believe that in some of the large metropolitan boroughs we do—there are surely innovations to be made. There is money to be saved, and there are new, different ways of doing things. I commend that to local councils.

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[John Woodcock (Barrow and Furness) (Lab/Co-op)]

I am grateful for the opportunity to speak in this important debate, and it is good to follow a well reasoned contribution from the hon. Member for Meon Valley (George Hollingbery), in which he made a number of interesting efficiency suggestions. All local authorities throughout the country need to think about the efficiencies that they can fairly and equitably make, but this debate is not about whether local authorities need to make them. It is about the way in which the funding settlement will be distributed throughout the country, and the unfair way in which it will impact on some of the most needy areas in the country.

It is unfortunate that we remain in the dark at this late stage of the funding cycle. The Minister complains that people are speculating about the final outcome, but this debate is his opportunity to tell us definitively what will happen and to reassure the House that the scenarios that the special interest group of municipal authorities, among others, has modelled will not come to pass. I am afraid, however, that in the absence of any hard answers from the Ministers, SIGOMA’s analysis is a good one that will continue to gain a great deal of currency.

[Barbara Keeley]

Was my hon. Friend as surprised as I was to hear that the hon. Member for Bermondsey and Old Southwark (Simon Hughes) seems to have received from the Government reassurances that have been denied to the rest of us? I wonder whether the Minister is prepared to share the reassurances that he has given to that Member with other Members.

[John Woodcock]

Members from all parts of the House will have noticed that, and the Minister has an opportunity now or later in his winding-up speech to share that information.

The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who resumes his seat as I speak, gave an eloquent speech in which he took issue with a number of his Government’s key policies, but he fell into the trap that even the Secretary of State has fallen into. The hon. Gentleman said, “Wouldn’t it be outrageous if any local council were to cut the budget of the voluntary sector to try and balance the books?” I say to him and the Minister, however, that local authorities are looking at the dire situation they face and the appalling decisions they have to make, and from the feedback, I have they do not welcome Ministers telling them what they ought not to do.

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[Barbara Keeley (Worsley and Eccles South) (Lab)]

I hope that the words that you have just uttered, Mr Speaker, will have an impact on Government Members, because there has been quite a lot of rowdiness today. I also think it worth saying that some of the ways in which Members are addressing female Members does them no credit at all.

We have had a good debate, featuring 25 Back-Bench speakers. It was polarised—as well as being, as I have said, a little rumbustious at times—but then the Government’s cuts are polarised in terms of their impact on different parts of the country.

The Secretary of State talked earlier of “Life on Mars”, and of returning to the 1980s. That is not the best theme when we are discussing cuts that will restrict and reduce services, damage communities, and put more than 100,000 local government staff out of work. The Secretary of State missed the contribution of the hon. Member for Bradford East (Mr Ward), who did not seem to feel that the 1980s were a great period. As for Government Members who thought that those were halcyon days in some respects, let me remind them of what was said by my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh): they ain’t seen nothing yet. That was the most difficult and damaging decade for communities. I became involved in politics, and stood for election as a councillor in Trafford, because of the 1980s and Thatcherite policies, and I am sure that many of my right hon. and hon. Friends did the same.

The Government have made choices about the severity and timing of cuts in local government budgets, but they are the wrong choices. The cuts are unfair, unreasonable and unmanageable. They are unfair because they hit the most deprived areas hardest, and will have an impact on the most vulnerable people. Affluent areas will not be hit by such deep cuts. Wokingham borough council, the least deprived unitary authority in England, will undergo cuts estimated at just 2.3% next year. The most deprived unitary authority in the country, Liverpool city council, is the hardest hit, facing estimated budget cuts of 12.3% next year alone.

Many of the excellent speeches that we heard, particularly those of Labour Members, were on that theme of unfairness. My hon. Friend the Member for Denton and Reddish (Andrew Gwynne) found it difficult to see any fairness in the cuts. He spoke of the 800 staff cuts with which his local authority is threatened, and of his concern about the impact on the voluntary sector. My hon. Friend the Member for North Tyneside (Mrs Glindon), who was a councillor for 15 years, told us that the Conservative mayor had urged Treasury and other Ministers to think again about the speed of their cuts. She said that she had asked officials to spread the reductions more evenly over the four years of the spending review.

My hon. Friend the Member for Blackpool South (Mr Marsden) talked about the help that his Conservative-controlled council had been given over issues of transience and deprivation, and his concern about the cuts in area-based grants. He spoke of the impact of cuts of £32 million, and said that the Conservative council leader had urged the Government to reconsider their approach—particularly their approach to front-loading, which would produce cuts of between 11% and 16%.

My hon. Friend the Member for Liverpool, Walton (Steve Rotheram) also talked about unfairness, focusing on the polarised nature of the Government’s approach. Estimates show that the most deprived areas will be hit hardest by the cuts, and that the least deprived will be least affected. My hon. Friend the Member for Barrow and Furness (John Woodcock) said that the Government should not adopt an approach that would render the funding of local areas blind to the needs of those areas, because that was neither fair nor progressive. My hon. Friend the Member for Liverpool, Wavertree (Luciana Berger) talked about the speed of the cuts and the front-loading. She was rightly concerned about the impact on Liverpool city council, which, as I said earlier, is the most deprived unitary authority in the country. She was also concerned about the impact on jobs and, in particular, on small business.

The fear has been expressed that local authorities may be forced into damaging crisis measures. The Secretary of State set out what he expected from councils when he said that further financial freedoms announced for councils would mean that they could better protect front-line services such as care for the elderly, but last week Birmingham city council proposed restricting funds for social care to those who had been assessed as “critical”, the highest possible level at which to set eligibility. People with substantial or moderate needs would be “signposted” to private and third sector providers.

Cuts like those being suggested by Birmingham council will undoubtedly lead either to a greater reliance on unpaid family carers or significant care needs simply being unmet. My hon. Friend the Member for Lewisham East (Heidi Alexander) talked eloquently about how difficult she found it as a councillor to consider raising eligibility criteria, and in the end she and her colleagues did not do it. They are to be commended for that.

Birmingham council, which is run by the Conservatives and Liberal Democrats, has claimed that its strategy on adult social care is part of its version of the big society. As my hon. Friend the Member for Stockton North (Alex Cunningham) said, the third sector is the big society; forcing unpaid family carers into a much heavier caring work load is not the big society.

The Government’s cuts are unreasonable with a lot of changes being made in a very short time scale, and there is insufficient support for councils to pay inevitable redundancy costs. A number of Members have raised that issue. The Local Government Association estimates that next year councils will be facing 11% cuts in their formula grant and many councils will also lose area-based grants, which were designed to tackle poverty and deprivation. Many Labour Members have talked about the impact of those changes on their communities as specific grants that had their own targeting based on need have now been rolled into the main formula grant. London Councils says the way this works will cause London’s share of these grants targeted at need to evaporate. It has said that the distribution mechanism used by the Government is flawed and generates perverse and unfair outcomes. The Government could mitigate the impact of the changes by setting funding floors at the highest possible level, and we urge them to do so.

The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is not in his place, supported setting funding floors at the highest possible level. [Hon. Members: “Here he is.”] He is here now; welcome. The hon. Member for Bermondsey and Old Southwark, who is now in his place, also put forward the LGA’s five recommendations: to smooth out the front-loading so as to lessen the impact on deprived areas; to increase capitalisation to what councils need; to account for missing grants; to review councils’ ability to recover costs through fees and charges, which several Members have talked about particularly in respect of burial charges; and to avoid any unfair distribution of grant. I must say, however, that although the hon. Gentleman put those points forward, they were also all put forward by the shadow Secretary of State, my right hon. Friend the Member for Don Valley (Caroline Flint), in her excellent opening speech.

Many Labour Members have talked about the fear of job cuts, which, to their credit, some Members on the Government Benches said they regretted. It is time to think not only of the job losses in local government, but the knock-on effect in other sectors. Today we have heard that recovery in the construction sector is stalled until at least 2013, given that construction work from the public sector is set to fall by 17%. My hon. Friend the Member for Stockton North talked about the loss of construction through the cancellation of Building Schools for the Future and the planned local hospital. The chairman of the UK Contractors Group confirmed this point when he said:

“About 40% of our business comes from the public sector and so construction will not be immune from these decisions”

in local government.

My hon. Friend the Member for Liverpool, Walton undoubtedly remembers a similar impact on the construction industry in the 1980s—the torrid decade of Tory rule as he calls it, which he said were devastating for Liverpool.

Losing a job is devastating, and the cuts will clearly lead to substantial reductions in staffing across the local authorities affected. The LGA estimates that 140,000 local authority jobs will be cut next year, but as we have heard from a number of Members, councils will not be able to meet the capital costs of those redundancies because the £200 million currently set out by the Government to pay the costs of redundancy is simply not sufficient: if 140,000 jobs are indeed lost, it amounts to less than £1,500 per redundancy. As we have heard, councils may need up to £2 billion next year, 10 times more than the provision made by the Government. We say councils should be given the flexibility to fund those redundancy costs from capital, as they need.

The Government’s cuts are not only unreasonable; they are also unmanageable. A number of councils believe that they will not be able to set a balanced budget given the front-loading of cuts next year. My hon. Friend the Member for Scunthorpe (Nic Dakin) spoke very well about that and possible unintended consequences. The Association of North East Councils, a cross-party group, has called the Government’s proposed cuts to local government “undeliverable for some” councils.

The Secretary of State has not been willing to admit that the cuts are front-loaded, despite a number of attempts to draw him to do so today, but the reality is that many councils will face budgets cut by 14, 18 or even 20% next year. Many Labour Members have discussed that issue and, as my right hon. Friend the shadow Secretary of State said, the president of the Society of District Council Treasurers has called the front-loading disastrous. The leaders of the Local Government Association called on the Secretary of State to mitigate the front-loading of cuts, as it would

“bear disproportionately on local communities and vital frontline local authority services”.

Indeed, the Conservative leader of Bury council said that

“it is almost impossible to absorb such vast figures in the time that we have available”.

Councillors not having any time available to them has been a key theme of our debate.

Many Government Members, including the hon. Members for South East Cornwall (Sheryll Murray), and for Meon Valley (George Hollingbery), have talked about introducing more innovative ways of dealing with the cuts, but Labour Members say that the severe and unexpected front-loading of the cuts will mean that councils do not have the time to do that. Shifting to shared service models, renegotiating long-term contracts and working with other sectors as providers are major changes. They take time and money to implement and that time is just not there. My hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) made that point most eloquently. It was also made by the hon. Member for Bradford East, who said that the front-loaded cuts were “reckless economic vandalism” and that cutting required time.

In dealing with these unfair, unreasonable and unmanageable cuts, councils are not assisted by the mixed messages coming from Ministers. The Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill) told the Hackney Gazette:

“Local authorities have been aware for some time that funding reductions were imminent and should have been looking at…reducing budgets next year”.

Many Government Members pursued that same theme today.

At the same time, other Ministers are calling on councils not to make redundancies or to plan cuts to services. The Deputy Prime Minister has criticised councils for acting now, saying that

“they shouldn’t immediately start issuing redundancy notices for savings that they can phase in over four years”.

On adult care, the Minister responsible for care services has said:

“There is no justification for local authorities to slash and burn or…to tighten eligibility”.

When asked about the impact of cuts on voluntary organisation funding, the Minister responsible for decentralisation said:

“I expect local government not to draw up the drawbridge, but to treat voluntary organisations fairly and…to allow them greater access”.—[Official Report, 25 November 2010; Vol. 519, c. 446.]

When asked about the effect of the spending review on libraries, the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey), said:

“Local authorities have a statutory duty to provide a comprehensive and efficient library service. I shall be writing to all local authorities this week to remind them of that.”—[Official Report, 29 November 2010; Vol. 519, c. 514.]

Today, the hon. Member for Bermondsey and Old Southwark said that councils must not pick on the voluntary sector.

It appears that Ministers and some hon. Members do not want councils to cut areas for which they have responsibility or just feel that they can avoid doing so. As we have heard in this debate, Conservative council leaders and Lib Dem councillors up and down the country feel the same way, and they have been pressing their case to the Government. But up and down the country there are reports of councils having to do the opposite of what they are told by this Government. For example, Conservative-run North Yorkshire county council, which plans to close more than half its 42 libraries and two thirds of its residential care homes, cut £10 million from the highway maintenance, road safety, countryside and arts budgets. It also cut bus subsidies, even to rural areas. Ministers are being totally unrealistic about the problems that many councils now face. It is clear to us that the Government are not listening to them. Labour Members are listening, and I urge Members on both sides of the House to support the motion, including the hon. Member for Bradford East and his colleagues.