Local Authorities: Budgets

Baroness Penn Excerpts

Tuesday 19th September 2023 Lords Chamber

[Baroness Taylor of Stevenage]

To ask His Majesty’s Government what assessment they have made of the impact of inflation on local authorities’ budgets; and how many local authorities they estimate will issue Section 114 notices in this financial year.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

The Government recognise the pressures that councils are facing. The 2023-24 local government finance settlement provided councils with a 9% increase in core spending power in total, demonstrating how the Government stand behind councils. Councils are responsible for managing their budgets. Any decision to issue a Section 114 notice is taken locally by the chief finance officer. The Government stand ready to speak to any council that has concerns about its ability to manage its finances.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I thank the noble Baroness for her Answer. The Institute for Fiscal Studies report last month concluded that the current funding system is not fit for purpose. It pointed out stark geographical differences in spending for local government, with the most deprived 20% of areas receiving 9% less than their estimated needs, while the least deprived 20% received 15% more. If the Government are serious about levelling up and the 700-page Bill we have just completed on Report is not ministerial flim-flam, when will the Government set out the timeframe for funding reforms that align local government funding with levelling-up goals?

[Baroness Penn (Con)]

My Lords, the existing system for local government funding directs increased resource to those councils with greater need. We understand the desire for clarity on distributional reform. We have confirmed that we will not be proceeding with the review of relative needs and resources, or a business rate reset, in the current spending review period, but we remain committed to improving local government finance in the next Parliament, and we will work closely with local partners and take stock of the challenges and opportunities they face before consulting on any further potential funding reform.

[Lord Laming (CB)]

My Lords, the Minister will understand that, due to the cuts that have taken place in local government, some authorities are in real terms said to be not yet back to where they were in 2010. That being so, will the Government consider a major review of the fundamental funding of local government services?

[Baroness Penn (Con)]

My Lords, I just set out the position on broader reform to the funding system for local government. The Government recognise the pressures that local authorities are facing. At the spending review 2021, the Government confirmed that councils in England would receive £4.8 billion of new grant funding between 2022-23 and 2024-25 to meet pressures in social care and other services. We also recognised in the Autumn Statement last year that the position on inflation had changed the position for councils, and set out additional funding to respond to that.

[Lord Lexden (Con)]

My Lords, is it not tragic that Birmingham—once the jewel of local government, thanks to Joseph Chamberlain and his son Neville, the reforming lord mayor in the early 20th century—should have been reduced to its present pass? What is to be done about this great council? Should it be split up? Its present position is truly tragic.

[Baroness Penn (Con)]

My Lords, as we speak, my right honourable friend the Secretary of State for Levelling Up is giving a Statement to the House of Commons on action to be taken on Birmingham City Council. It is the Government’s intention to appoint commissioners in that instance, but there will be a period of consultation, I believe, before that is brought forth.

[Baroness Pinnock (LD)]

My Lords, the Minister said that the Government have finally recognised that councils are facing financial difficulties. However, the Government have been defunding councils over a number of years, so even with the relatively small increase this year, they are still 25% down on the levels they had in 2010. How does that fit with the levelling-up agenda?

[Baroness Penn (Con)]

My Lords, I do not recognise the figures that the noble Baroness has put forward. She will know, having been part of the coalition Government in 2010, that the situation this Government inherited from the Benches opposite required difficult decisions to be taken at the time.

[Noble Lords]

Oh!

[Baroness Penn (Con)]

The Benches opposite may not like being reminded of their record, but it remains a fact. The reality is that in the recent spending review we have committed more money to local government services, and that was increased further last year at the Autumn Statement in light of the inflationary pressures that councils are facing.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, this Government can promise what they like for the next election, but the fact is that they are not going to be in power, so all those promises come to nothing. What this Government have done is to reduce council budgets and make severe cuts. I heard only today from councillors from East Hertfordshire Council that the Government have cancelled four big infrastructure projects. How can councils carry on if this Government do not support them, which they are not doing?

[Baroness Penn (Con)]

My Lords, the Government are supporting councils. This is not about what is happening after the next election. In this spending review period, councils will receive £4.8 billion of new grant funding—the largest annual increase in core funding in over a decade—and that was further topped up at the Autumn Statement last year, recognising the pressures that councils face. Councils are doing an excellent job up and down the country, and we support them.

[Lord Sahota (Lab)]

My Lords, does the Minister agree that one of the reasons so many local authorities are in such financial trouble these days is because there is a lack of external scrutiny and transparency since the scrapping of the Audit Commission in 2015?

[Baroness Penn (Con)]

No, I do not agree. In recent years, a small number of local authorities took on excessive debt through their commercial strategies and investments. The Government have taken action both to bring this practice to an end and to revise the framework by which local authorities can borrow and invest. The levelling-up Bill expands statutory powers to directly tackle excessive risk within the local government capital system.

[Lord Porter of Spalding (Con)]

My Lords, the scrapping of the Audit Commission was one of the best functions of the previous coalition Government. The Audit Commission wasted billions of pounds of public money.

[Baroness Penn (Con)]

My noble friend sets out the rationale for the decision that was taken, and the Government have made sure that, in the commission’s place, we have strong controls so that local government spending is done in the best possible way.

[The Earl of Clancarty (CB)]

My Lords, arts facilities will be among the first to go when local authorities have no money. The wonderful Lightbox gallery in Woking, not far from me, is now under threat, as indeed is funding elsewhere for symphony orchestras and much else. I repeat what others have asked: will the Government properly fund our local authorities, which have been underfunded for years, so that all our cultural and leisure amenities are allowed to survive and thrive?

[Baroness Penn (Con)]

My Lords, I repeat what I said about the recent spending review being the largest increase to core spending powers for local government in over a decade. Additionally, we have put significant support into the arts and culture sector through not only the culture recovery fund during the pandemic but, for example, support to swimming pools— they face high energy costs during the current period of inflation—in the last Autumn Statement. We continue to provide that specific support.

[Lord Watts (Lab)]

My Lords, have the Government not been fiddling with the local government finance system for years? Do we not now need an academic study to come forward with a plan for local government funding that takes into account deprivation and the need to spend?

[Baroness Penn (Con)]

I do not agree with the noble Lord’s analysis but, as I said to the noble Baroness in my Answer, our approach takes councils’ relative needs into account. We recognise that this may need to be looked at again but, to provide councils with certainty, that will not be done during this spending review period; it will be looked at after the next Parliament.

[Lord Hannan of Kingsclere (Con)]

My Lords, we currently give three-quarters of local councils their grants from the centre. It is a higher figure than for anywhere in Europe, except tiny Malta, hence the assumption on all sides is that the solvency of local authorities is ultimately for central government. Does the Minister not agree that it would be healthier for democracy if local councils raised a higher proportion of their own budgets, so that there was a proper link between taxation, representation and expenditure?

[Baroness Penn (Con)]

My Lords, the Government are moving towards such steps—for example, through mayoral combined authorities and other areas where we are devolving both greater control of funding and powers to those areas to act. With that comes greater accountability.

[Lord Lansley (Con)]

Can my noble friend say whether the Government have received any proposals from His Majesty’s loyal Opposition on where additional funding for local government is to be provided from?

[Baroness Penn (Con)]

I have not received any such representations, but they have perhaps gone to the department for levelling up; I will ask it if it has ever received such representations from the Opposition Front Bench.