Local Government: Finance Settlement

Baroness Hanham Excerpts

Thursday 17th January 2013 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, along with other noble Lords, I thank the noble Lord, Lord Smith, for generating this debate. It has not been very long since we had a previous discussion about the local government finance settlement just before Christmas, and here we are again. None the less, I also want to thank the noble Lord for the measured way in which he introduced the debate. He has a lot of common sense and experience, which comes out in the way he speaks.

I was asked, by the noble Baroness, Lady Armstrong, most particularly, about the delay in the provisional settlement. It was later than we would have wished and we appreciate that that has caused a great deal of late assessment. As the noble Baroness and others will know, the annual Autumn Statement was late this year, so we could not get out the provisional settlements any time before that was done. However, I reassure her that we are working to publish the final settlement as early as possible in February. We have made clear to other departments that local government needs all funding allocations—£150 million for the early intervention grant topslice, for example, and the public health grant that has now been announced—as soon as possible. In the interim, noble Lords will know that we have each year been receiving local authorities that have come to discuss their own settlements; no decisions have yet been made on what they have put forward, but they are in the process of being considered. As a department, we have not been sitting back just letting things happen; nor are we unaware of the difficulties that this has caused.

Sometimes, I think we look at this from different ends of the telescope, but I want to say that I appreciate that local government is in a changing situation. It is required to make major decisions as the financial position has moved us into having to reduce its grant. I do not want anybody to think that the department itself is sitting in luxury. It is not: we have lost nearly 30% of the grant that is given to local government, and if we do not have that, we cannot pass it on. We are feeling the pinch as well; the noble Baroness, Lady Armstrong, will know that there has been a huge reduction in the number of staff.

Councils account for a quarter of all public spending. This year, they will spend more than £114.5 billion. That is larger than the budget of the National Health Service, and twice the entire defence budget. It is also more than double the debt interest, so we are not talking about peanuts here. We are talking about a very substantial slice of the nation’s budget. It is vital that local authorities continue to play their part in tackling the inherited budget deficit. They have to make sensible savings and deliver value for money for the taxpayer.

I know that no noble Lord who has spoken will agree with the following statement but we believe that local government has been given a good deal in 2013-14. It is worth noting that it was exempt from further reductions in the Autumn Statement. We could have lost another 1%, which did not happen. The important protection that this provides will give local authorities time, I hope, to look at where they can change services and manage savings, bearing in mind that next year will probably not be any better.

This is the beginning of a new settlement. It is a fundamental change from the old ways of working. Councils will be expected to make changes, which I appreciate is not always easy. The accusation has been made that this budget or settlement is not fair but I disagree. We think that it is fair. Of course, because of the way in which the formula works, there are differences in certain areas. Northern councils have not come off worse than anyone else. We understand that some areas got less than they anticipated but the north-south split was not part of a formula. We have retained the four floor dampings and the protection that they offer most councils. This year, we have gone further and stretched the banded damping floors so that they give more weight to the councils that are most dependent. At the same time, the Government have introduced banded floors for fire and rescue services.

We also have restored the level of the relative resource amount to that for 2010-11 to help authorities with a low council tax base. We have introduced a safety net to provide additional protection where councils are likely to lose resources. Noble Lords will know that, between the top-up and tariffs, no one will be worse off than having 92.7%. There will be a safety net on the business rate to help provide that, which will help to ensure that service provision does not suffer as a result of volatility in the council’s business rates. The noble Lord, Lord Smith, referred to the reduction in the business rate and what would happen if there was a big drop because, say, a business went out of business. The answer is that the safety net would pick that up and there would be a within-year settlement. There would not be a big problem.

Next year, councils will host new financial incentives to increase their income. If they build more homes—we have heard a lot about the new homes bonus—they will benefit. There was a suggestion that the new homes bonus would be cut. The new homes bonus is as it was expected to be. There was to be topslicing next year but local authorities have asked that most of that new homes bonus should go into the settlement, which has happened. The new homes bonus is already contributing to the budget. It also is worth noting that the new homes bonus does the job it is meant to do. It pays for, and helps to pay for, the development of new homes. Empty homes also benefit from the new homes bonus. While it is not ring-fenced, it supports local authorities in providing infrastructure that will support homes.

There is also up to £1 billion in community infrastructure levy. I was rather taken aback to hear a noble Lord say that councils could not do what they want. The general power of competence is a very fundamental part of giving councils responsibility for all their own decisions and for what they can do. There is the benefit from the £2.4 billion Regional Growth Fund and the £770 million Growing Places Fund, so there are other sources of money coming to local councils.

The noble Lord, Lord Smith, acknowledged that councils will have to achieve savings and I acknowledge that they are doing so. The noble Lord, Lord Tope, asked me to say thank you to local government, which I have no hesitation in doing. As a former part of local government, I know and I appreciate what it does and I know that councils have an enormous amount to do in supporting their local communities. That is the view across the department and of our Ministers. We appreciate that that is so. If it was not so, we would not be passing any of the additional powers or responsibilities that we are to local government. I hope that will underline a little how the noble Lord, Lord Tope, and we feel about local government.

Returning to the noble Lord, Lord Smith, and others, he was gracious enough to accept that local government was going to have to achieve savings and everybody has known that. There has also been a huge amount of advice as to how those savings might come about and a great many local authorities are already following that. They are sharing chief executives, back-office services and contracts for open spaces and waste management, but not all of them are doing that. Those that are behind need to learn from those that are doing it. The Local Government Association—to give it its due—has some very powerful peer help for local authorities. Those that are not doing it and do not understand it need to ask for that help, which I know is there.

The noble Lord, Lord Smith, who made all the major points, also mentioned the collaboration between public bodies. Community budgets are great and the four whole-place budgets will now be extended out. They are demonstrating very clearly that where public bodies get together, they can pool their funding and work together to help individuals. Troubled Families is a good example of co-operative work where not everyone is tootling off, doing the same thing for the same family, but one person has responsibility. This is beginning to work and beginning not only to save money—that is not the only purpose of this—but to set those families on a road which will, we hope, lead them to jobs and their children into education, away from all those things that were holding them back.

Community budgets are not as specific as the whole-place budgets but they also demonstrate that you can bring public bodies together to manage their budgets better. When I was a leader of a council, you could not do that. I often said it was like being in a little kingdom with a wall around you. You could not share budgets so this is a great move forward.

The other thing that was brought up in particular was the business rate appeal. Room has been made within all the settlements to allow for appeals. There is headroom now—I think of about 8%—to settle these problems. The Local Government Association and the department have spent a long time agitating together to see if this could be done on a more individual basis, but it just is not possible because the number of outstanding appeals is not known. The support has been given and is there so I hope that that will be understood.

There was some concern about rural local authorities getting more than other authorities. In fact, rural authorities are a bit peeved as they feel that they are getting less than others. One needs a balanced understanding of who is getting what. The noble Lord, Lord Greaves, suggested that the shire district councils were worse off and said that Pendle, Hastings and Great Yarmouth councils could bid for an efficiency support grant. He will know that the efficiency support grant is allocated to seven councils so that their spending power is not reduced by more than 8.8%, which is the level for all local authorities. Anybody who has studied the figures will know perfectly well that there is a range here. Some local authorities do better than others as regards spending power but the relevant councils stood out as being ones that were very much losing out.

The retention of the business rate will, of course, have different effects in different parts of the country. The noble Lord, Lord Greaves, was right to point out that it will be easier to retain it in some places than in others. We will need to monitor how that works. However, local authorities have asked repeatedly to retain the business rate. Although they clearly cannot keep all of it, this is a good step in the right direction. As we have made clear, we hope to raise the 50% figure slightly as the financial situation improves. I make no promises in that regard but I hope that that will happen in due course.

A number of specific questions were asked, which I will need to look at to see whether there is anything further that we need to take on board. I wish to finish my speech by commenting on the council tax freeze. That issue is very important as it has meant that local taxpayers have been protected from large council tax increases. The noble Lord, Lord Shipley, said that it was up to councils to decide the level of council tax that they needed to levy and that they should be able to impose it. However, that was the old position and it caused a great deal of angst and upset. For that reason it was decided to limit council tax increases. Local councils can increase their tax this year by up to 2%. If they feel strongly that they need to go above that level, they have to put their case to their local residents and ask them whether they are happy for that to be done. Therefore, rather than just being faced with a rise in council tax, residents will be asked whether they think that it is appropriate. That seems to me not an unfair way to proceed.

I will draw my remarks to a close before I run out of breath and can no longer speak. I thank all noble Lords who have contributed to this interesting debate, in which some looked at this issue through a different end of the telescope from me. However, that does not surprise me.