Local Authority Funding

Brandon Lewis Excerpts

Tuesday 3rd December 2013 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Streeter. I congratulate the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) on securing a debate on a matter that is clearly important for her. It gives us the chance to air some important issues about local government more generally.

Before I turn directly to the subject of the debate, I want to put it in context. The shadow Minister commented on the size of local government, its funding and the changes in funding. He made a comment about going too far and too fast, which we have not heard for some time from the Opposition. That comment seems incredible in the light of the current economic situation, as the Government’s economic policy is clearly working for the benefit of the country.

We also have to remember exactly how we got to where we are. The previous Government left us with an unprecedented deficit, something this Government are having to deal with. Local government accounts for 25% of public expenditure, and so has a big part to play in those efforts. Unfortunately, that is a part of the legacy that we took on from the previous Government. Even today, we are still all wondering about the £52 million—and growing—cuts that Labour has stated that it would make to local government; despite what the shadow Minister said, Labour has not yet outlined where those cuts would come from, and the figure has continued to go up in some of its recent pledges. We have to put the situation in some context.

[Mr Nicholas Brown]

I do not accept the Minister’s analysis, but for the purposes of debate, I will give him the benefit of the doubt. If what he says is right, why is the burden of expenditure reduction not being shared fairly across England? If special measures to protect anyone should be taken, why are they not being taken to protect the very poorest and most vulnerable—the people whom local authorities have a statutory duty to look after? Why is the burden not being shared fairly?

--- Later in debate ---

[Brandon Lewis]

I will come to the issue outlined by the right hon. Gentleman, but I remind him that the independent report, which is in the Library, outlined that this year’s settlement was fair to areas in the north and south, rural and urban. It is important to remember the legacy that we inherited. My area—Great Yarmouth—is in the east and, thanks to the previous Government’s policy decisions, was left with a £3 million black hole, which this Government have had to fix. When we talk about spending power, we must remember that a Labour Government left my local authority with what would have been a 20% cut in spending power in one year— something this Government have had to deal with.

The hon. Member for Corby (Andy Sawford) mentioned councils such as West Somerset. He might like to do a bit more research and homework on what is going on in West Somerset and look at the work it is doing with its neighbours, on which I congratulate it. More and more small district authorities are moving to ensure that money on the front line is not spent on bureaucracy and red-tape administration. Many small district authorities particularly have budgets of under £20 million and should be looking to share management and chief executives to ensure that their taxpayers’ hard-earned money is spent on the services that we all want and not on bureaucracy and red tape. It is logical for authorities to do that. Instead of using childish language such as “takeover”, Labour Members should realise that this is about working in partnership and with efficiency for the benefit of local people.

It is important to understand that there has been a landmark change for local government this year. After years of doffing their caps to Whitehall, all councils now have the ability to control their own destiny. In the midst of the clamour of deficit denial and doom-mongering from some people, that message is in danger of not being heard. The size of the deficit and the debt must be dealt with, and local government is one of the biggest players in the public sector.

I want to make it clear to hon. Members that the current settlement and the one that we will soon propose for 2014-15 are fair to all—the north and the south—as the Library outlined. The hon. Member for Newcastle upon Tyne Central referred to what will happen next year, and I hope that she appreciates that we are only a couple of weeks from next year’s assessment, so she will not have to wait long for the details.

[Chi Onwurah]

I urge the Minister to focus on the key point of this debate, which is that money is being held back from local authorities and redistributed. He said that local authorities can take their destiny into their own hands and drive forward, but that necessitates imposing no such holdbacks in future. Will he confirm that?

[Brandon Lewis]

The hon. Lady’s point highlights where we are. The current structure for local government is that councils will benefit and see their income rise as a reward for the good work that they do for their communities. I will touch on that directly.

Manchester, Liverpool and Newcastle all have higher spending power per dwelling than the national average. When talking about what local areas have, it is important to put that in the context of the starting point. The average reduction in spending power is only 1.3% this year and we are protecting individual council tax payers by offering a council tax freeze. We are protecting councils through the rates retention scheme’s safety net, which generates a minimum level for their baseline funding, which Newcastle will benefit from, although it was unable to do so previously.

The settlement is fair because even for councils like mine, which now benefits from the efficiency support grant, we have provided protection for those who were hit worst by the policy decisions of the previous Government, and that brings me to the important point of how the system now works in a council’s favour. Following the Localism Act 2011 and financial reforms to the settlement, 70% of an authority’s income is raised locally and, most importantly, the growth incentive ensures that local government will keep up to 50% of all the growth that it generates. Councils have more power than ever before, but they must understand the implications. They must act in their residents’ best interests and work hard on their behalf. Redesigning council tax benefit to cut fraud, which costs around £2 billion, promoting local enterprise and getting people back into work, or redesigning services to make them more efficient and sustainable, especially as there are still savings to be had across the sector, all make a difference.

Some cutting-edge councils understand that and lead by example in developing good practice for the rest of the country to follow. Getting the ball rolling can be the hardest part of radically overhauling local services. The Government established the transformation challenge award to help councils, particularly small ones, to demonstrate innovation, to protect services and to reduce costs to the taxpayer. Just a few months ago, I was pleased to announce 18 successful schemes, including projects to accelerate the integration of local health and care services, which hon. Members have outlined this afternoon, and to create shared finance and human resources for emergency services.

The £3.8 billion that is coming across from the health service to be part of the local government family to provide adult social care is an indication of the work that follows on from the community budget pilots. That transformation touches on the point that the hon. Member for Corby made and is an important way to bring the public sector together and to drive out duplication and provide better services. We know from the community budget pilots that up to £20 billion of savings can be found across the public sector if we can get the work done correctly throughout the country. More importantly, they have shown better services for residents and more effective service delivery.

[Debbie Abrahams]

Will the Minister undertake on behalf of his Department to publish information about the impact of the reductions on funding to local authorities and on services?

[Brandon Lewis]

The whole point of the change in the structure of local government finance is that council finance is partly in councils’ control. That is why 40 authorities have had an increase in their income this year alone. Today, a Labour authority has predicted a £500,000 increase in its income over the next couple of years, thanks to the business rate retention scheme. Hon. Members should focus on their councils’ decisions on what services they provide locally. Some £3.8 billion is going to local councils to ensure that they can deal with adult social care in a joined-up way, without creating further bureaucracy.

Local government has shown great skill in moving forward. The Audit Commission and a recent survey noted that residents believe that services have improved. Our community and neighbourhood budgets show that we are finding ways to rewire the system to provide better services at much lower cost.

Turning to the future, I recognise that councils are facing pressures. That is why the spending review set out a package of measures to support them in 2015-16, including the £3.8 billion pool of funding for integrated health and social care, which will help to ensure that services in the care and support system can be protected and will enable authorities to invest in prevention and early intervention.

We will make available a new fund of £330 million to accelerate the transformation of local services with a £200 million extension of the troubled families programme to support another 400,000 families, £100 million to build on the transformation challenge award to improve public service delivery and a further £30 million to drive change in the fire and rescue service. All that together shows that there is a huge opportunity for councils to save money and to achieve better outcomes by working collaboratively and innovatively for their communities.

[Chi Onwurah]

The Minister avoided answering the question asked by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) about the impact of the funding changes on different councils in the north and south by re-emphasising the power that local authorities and councils have to direct their own funding. Will he specifically say whether he supports the principle of holding back funding, as has been described in several contributions this afternoon? He has listed some increases in some different funds. Are they coming from top-sliced funding or from new money, as we would understand it?

[Brandon Lewis]

I tell the hon. Lady again that what a local council does with its funding is a matter that she must put to her local authority. Councils must make the decisions about how they spend the money that they have. There is no point continuing to look at silo pots of money. The point of spending power is that it shows exactly what a local council has in total to spend on its local community. In Newcastle, the amount is one of the highest in the country. It is also why it is important that we offer support to people individually as well. We are pleased to be able to offer further support for council tax freezes in 2014-15 and 2015-16. We have been clear that if an authority wants to raise its council tax, it should do so with the assent of the public in a referendum locally. It needs to be able to explain to residents what it wants that money for and to convince residents of its case.

It is worth adding that in many cases, councils have more in reserves than they are losing through cutbacks. Liverpool, Manchester and Leeds all have reserves that are twice that of their spending power reductions. Indeed, this year, Newcastle has had substantial reserves. It is also important to note that local authorities will be spending about £4 billion extra this year across the country—well over the £100 billion of last year. It is also worth noting that local authorities have managed to increase reserves to a record level, going up by almost £3 billion to £19 billion. With that and the £2 billion in fraud and error, and with a further £2 billion in uncollected council tax, there is still a long way for local authorities to go before they can claim that they have done everything to drive out waste and bureaucracy.

We are in a new world for local government. The funding settlement used to be the endgame; now, it is just the starting point, with councils no longer tied to the settlement figures. They can get to earn their keep and retain £11 billion of business rates. That could deliver an extra £10 billion to our wider economy. It is worth noting that areas such as Manchester, Liverpool and Newcastle all saw business rates rise above the national average of 4.8% in recent years. However, thanks to the old begging bowl system, they missed out on the opportunity of making the most of that money—but no longer. From now on, it will be what councils make and not what they take that counts. If they bring in more businesses, more jobs and more homes, they will be rewarded. If they build those new homes through the new homes bonus, they will see a share of that money, which is worth £650 million this year and is growing. If they increase their business rates, they will retain some of the benefit of that increase.

Therefore, the message to councils is clear: if they are ambitious, become self-reliant and work hard on behalf of their local people, they will succeed and see the benefits. We want authorities to go further and faster, so that residents feel those benefits. We want to help and reward those who do the right thing and are innovative. Our funding approaches, as has been outlined independently, are fair for north and south, urban and rural, and rich and poor. I gently say to hon. Members who have outlined what they see as the funding draw from urban areas that even Labour Front Benchers have been arguing on the Floor of the House to move money away from urban areas into rural areas.

[Andy Sawford]

Will the Minister say which Labour Front Benchers have been making that argument?

[Brandon Lewis]

The hon. Gentleman’s colleague, the hon. Member for City of Durham (Roberta Blackman-Woods), made that point in a petition in the House just a couple of weeks ago, in pushing to have that gap between urban and rural moved more towards rural areas.

[Andy Sawford]

I inform the Minister that I also put a petition from local residents in the Speaker’s petition bag, as did many hon. Members of all parties in representing their constituents. However, the Labour Front-Bench team’s position was clearly set out, as the Minister is very well aware, only a few weeks ago in the debate relating to SPARSE—the Sparsity Partnership for Authorities delivering Rural Services. We were clear that we see the current formula as fundamentally unfair.

[Brandon Lewis]

I gently say to the hon. Gentleman that the hon. Member for City of Durham was in the Chamber on the night giving in her petition, in which the case that was being made was not about having more money, but about ensuring a different distribution between rural and urban areas, but I shall let him take that up with her, rather than me. She was the one who was making the case to move the money to rural away from urban, so I suspect that the Labour party has some work to do with its own Members.

We now ensure that the system rewards innovation and imagination, as we saw this year with the transformation fund. We have given councils more power than they have had before, and we are developing a new ethos for local government, where they are generating more income through the work that they do locally, rather than holding out a begging bowl to central Government. If councils are willing to look to the future, they have a once-in-a-generation chance to step out from Whitehall’s shadow and to use the income from local growth to support, develop and improve the services that they give their residents.