Local Government Finance Settlement

Baroness Stowell of Beeston Excerpts

Thursday 9th January 2014 Lords Chamber

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

My Lords, I am grateful to the noble Lord, Lord Smith of Leigh, for securing this debate today and, indeed, for his warm welcome to me in this role and in responding to this annual event for the first time. I should like to respond particularly to the remarks made by the noble Lord, Lord Beecham, about my right honourable friend the Secretary of State, Eric Pickles. All I can say to the noble Lord, Lord Beecham, is that it is such a shame because he speaks so well of you.

Noble Lords have covered a lot of ground in this debate and I may not have the opportunity to respond to all the points that have been put to me. I will do my best today. Where I am not successful, I will, of course, supplement my response with a follow-up letter which I will place in the Library of the House. I will just point out to the noble Lord, Lord Whitty, that we have a debate on affordable housing before the end of this month so we will be able to return on that occasion to some of the points that he raised.

The starting point in a debate such as this is to look at the context in which we are debating these matters and acknowledge that over the past three years the Government have had to take some tough decisions about the public finances. Tough, but these are now paying off as the economy gets back on track. My noble friend Lord True highlighted one prediction of the noble Lord, Lord McKenzie, in his contribution to last year’s debate which did not materialise. That was about councils becoming insolvent. It is worth reminding the House that the noble Lord, Lord McKenzie, also suggested last year that we were facing an environment of little growth and increasing debt, but as we look ahead, growth is forecast to be 2.4% this year. The Office for Budget Responsibility expects that jobs will be up by 400,000 and employment is at an all time high.

[Lord McKenzie of Luton]

Will the Minister tell me when government debt is expected to stop growing?

[Baroness Stowell of Beeston]

As the noble Lord knows, while we remain having to bring down the deficit, we still have to pay off debt but we are having to deal with less debt than we might otherwise have done had we not taken the measures that we have.

I shall return now to what we have done in terms of the changes we have made and people’s reaction to them. It is worth reminding your Lordships that, as regards the changes we have made to the way in which councils are funded, a recent survey showed that public satisfaction with council services has stayed the same or actually improved in 90% of cases. That is a real credit to local authorities. We are making progress but in order to continue to do so it is vital that we stick to the disciplined course that has been set. Like every part of the public sector, councils have had to shoulder their fair share of the responsibility to pay down the deficit and get the nation’s finances back on a stable footing. The noble Lord, Lord Liddle, acknowledged that the right honourable Alistair Darling, when Chancellor, said in 2010 that cuts would be necessary if the Labour Government were re-elected at that time. However, it is worth noting that the Labour Opposition have opposed all of this Government’s cuts to local government. My noble friend Lord Shipley was right to ask what the noble Lord, Lord McKenzie, would do if Labour were elected. I noted that he did not provide us with much information on that in his winding-up speech today.

Much of the comment today has focused on reductions in central government grant. However, concentrating on those grants misses the bigger picture. It is far more accurate to look at the overall spending power that councils have. Contrary to what has been said, spending power is the best available measure of resources available to councils. We have published the methodology and the data in full on our website. Spending power includes the money the councils raise through council tax, business rates and financial incentives. I am sure noble Lords will welcome being reminded that local authorities now retain 50% of those business rates, which is not something they were able to do previously.

This debate illustrates some stark contrasts between this Government’s approach and philosophy and those of the Opposition. The previous system made councils dependent on central government for their income. Councils got more money by painting the blackest possible picture of their area. Indeed, Andy Sawford, the opposition spokesman in the other place, said only this week that the Labour Party would return to this approach if it succeeded in winning the general election next year. The Opposition talk about so-called fair funding but what they do not say is which councils they would cut if they were to introduce their preferred approach.

In contrast, we have set up a system which inspires ambition and aspiration and rewards councils which go for growth, support businesses, attract investment, help create jobs, and which are absolutely focused on transforming their services to deliver the best possible outcomes. By that I mean the most effective and most efficient public services which best support local residents. Our system means that councils which respond to new opportunities see the benefits of their efforts. I remind noble Lords what my noble friend Lady Hanham said when she spoke powerfully about the flexibility that local authorities now enjoy. I give way to the noble Baroness.

[Baroness Farrington of Ribbleton]

Will the Minister please give the names of two or three local authorities which in her Government’s view have deliberately overemphasised their deprivation in the past in order to secure help? Did Windsor do that?

[Baroness Stowell of Beeston]

I am not suggesting that people overemphasise, I am suggesting that the different approaches between this Government and the noble Baroness’s Government led to authorities focusing on where they faced difficulties rather than focusing on how they could benefit from opportunities.

One of the best illustrations of this Government’s approach is the new homes bonus, an incentive that will be worth almost £1 billion next year. This year, Bradford can expect some £2 million in new homes bonus for year 4 of the scheme, Wiltshire some £3 million and Walsall £1.2 million. The Government have listened to local authorities about not topslicing the new homes bonus, which was acknowledged by the noble Lord, Lord McKenzie. I am listening to noble Lords who call for even greater localism and I am interested in what they say but I also hear some contradictions in the various analyses that have been made by noble Lords in the debate today.

One of the other major points raised by noble Lords is that some parts of the country are losing out compared to others. However, the settlement represents a fair deal for every part of the country: north and south, district and county, city and shire. On average, councils will have spending power worth £2,089 per household. The average spending power reduction is just 2.9% in 2014-15. There is protection for more deprived areas of the country, those areas which are most dependent on grant. They continue to receive significantly more government grant. Notwithstanding the comments made by the noble Lord, Lord Beecham, it is worth making the point that Newcastle, for instance, receives in the region of £900 more per household than authorities such as Windsor and Maidenhead.

We have also recognised—

[Lord Beecham]

Does the Minister not recall the indices of deprivation to which I referred? The required spending is much higher per head than in Windsor and Maidenhead. On that basis, how can she possibly compare the two?

[Baroness Stowell of Beeston]

This system acknowledges that there is greater need in an area such as Newcastle. That is why it is receiving considerably more per household than areas that are not in as great a need. We acknowledge that and that is what we are doing. However, we also believe, taking on board the point made by my noble friend Lady Hanham, that Newcastle, along with every other area of this country, also has great opportunities to raise more funding in its own area through the various different kinds of scheme that are there and that will increase growth in the area if the opportunities are taken. We have also recognised that services can sometimes be more difficult and expensive to deliver in rural areas and have set aside £9.5 million to help them as they modernise their services.

The noble Lord, Lord Beecham, raised questions about the inclusion of social care funding. Social care funding, or the better care fund, which is worth £3.8 billion, is jointly agreed by councils and the NHS locally. Provisional settlement figures show that authorities facing the highest demand for services receive substantially more funding.

As councils are now in the process of setting their budgets, council tax payers will be looking to them to keep bills down. When we look at the local government finance settlement, local council tax payers are very much in the front of our mind. The Opposition talk a lot about the cost of living, but it is worth pointing out that under the previous Government, as my noble friend Lord True said, council tax more than doubled. This Government have done everything possible to protect hard-working families from further rises. Over the past three years, we have offered enough funding for councils to freeze council tax without losing income. We will be doing the same again for the next two years, with a further £550 million available to councils. We also intend to roll that funding into the baseline, giving certainty that councils will not lose out tomorrow by helping council tax payers today. Where bills have been frozen, the average bill payer could have saved more than £700. I very much hope that as many councils as possible will take up this offer, passing on these savings to their residents and doing their bit to help people with the cost of living.

I do not think that any noble Lord raised the issue of council tax referendums but I am sure your Lordships will wish to know that we are still consulting on the principles of that. The threshold will be announced shortly. Noble Lords should be aware that we are open to representations about a lower threshold than that set up to now. Transparency and accountability to local taxpayers are absolutely critical. Those authorities which have been setting a 1.9% increase to avoid the 2% threshold for a referendum are simply not having an honest conversation with their residents. The money is there to freeze bills so why not take it?

[Lord Beecham]

I am grateful to the noble Baroness. Is she saying that you can have any increase you like under 10% as long as the Government approve of it? Why does she not allow the electorate to make its judgement as it does upon Governments, at the ballot box at elections?

[Baroness Stowell of Beeston]

The noble Lord knows very well that we are ensuring that councils can freeze council tax. We think that it is important that that can be delivered as a way to support families who struggle with the cost of living. The noble Lord, as concerned as he is about the cost of living, should support councils in freezing their council tax.

I do not agree with the noble Lord, Lord Liddle, that my right honourable friend the Secretary of State has not paid tribute to what many councils have done to try to transform services. We acknowledge that many councils have taken steps to make savings through common-sense measures, but much more could still be done. I also do not agree with the noble Lord, Lord Smith of Leigh, that nothing more can be done because only low-hanging fruit was available to them. We are not talking small change here. It is estimated that some £2 billion a year is lost through local fraud. Local authorities spend £60 billion a year on procurement. There remains plenty of room for councils to save significant sums through more joint working, sharing back-office functions and using smarter procurement practice. Council tax payers rightly expect to see councils tackle these issues before they start putting up bills or cutting back on services. As has already been mentioned, the Government published Fifty Ways To Save. I will not accept any cynicism about this because no council is yet fully realising the potential set out in that document. As one example, there are only around 20 shared chief executive posts in the country. There are plenty of other examples where local authorities have made significant strides forward in this area and demonstrated what is possible.

Councils also have more than £19 billion in reserves. People would be surprised to hear that that is increasing while at the same time local authorities plead poverty. There is also something like £2 billion-worth of uncollected council tax. Councils have varying degrees of success in their collection rates, but all need to aspire to the best. That is even before we begin to consider the more fundamental transformation in services through models like the troubled families programme or the whole place community budgets, where the emphasis is on early intervention and prevention. Over time, these programmes promise to be more effective and efficient. I could offer more examples but do not have the time. I highlight this kind of approach in response to the noble Baroness, Lady Pitkeathley, and others who raised concerns about some specific services. We have set aside £200 million from capital receipts to support service transformation. Next year, there will be a further £330 million to continue this transformation, including a £200 million expansion of the troubled families programme.

Several noble Lords raised questions about the timing of the announcement. I am sure that noble Lords will understand that the settlement must follow the Autumn Statement, which this year was on 5 December. The noble Baroness, Lady Donaghy, asked about the consultation period. I make the point to her and other noble Lords that the consultation period we are in at the moment is on top of widespread consultation during the course of the year that led to the provisional settlement. I have already mentioned in respect of the new home bonus one change that we made in light of listening to that consultation. My honourable friend the local government Minister has already had one conference call open to all local authorities. He will hold another and continues to have an open-door policy available to all those wishing to engage and discuss matters with him.

The right reverend Prelate the Bishop of Ripon and Leeds and the noble Lord, Lord McKenzie, asked about local welfare provision. Councils will continue to provide support to those in the community who face financial difficulty or find themselves in unavoidable circumstances. The LGA has raised those issues with DWP Ministers, and I understand that it is in discussion with the DWP at this moment.

As I said, I will follow up some other points in a letter that I will write following the debate. In concluding, councils have taken important steps towards modernising and transforming their services, and I pay tribute to them for their efforts, but it is possible to do more while also keeping council tax down. We have delivered a settlement that is fair to all parts of the country, and we believe that the flexibility is there to help councils to meet this challenge and, most importantly, to serve their local taxpayers even more efficiently and effectively than they have been able to in the past.