Local Government Finance

Brandon Lewis Excerpts

Tuesday 26th February 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, Mr Gray. I thank the right hon. Member for Knowsley (Mr Howarth) for and congratulate him on raising an important issue. However, I was a little surprised by his choice of topic, because the settlement, as he will appreciate and other Members have commented, is for not only Knowsley, Liverpool, Merseyside, Manchester or even Great Yarmouth, but the whole of local government. It is a landmark in the sense that, after years of doffing their caps to Whitehall, all councils can now take charge of their own destiny.

I was particularly surprised that the right hon. Gentleman chose this debate and made the case he has tried to make about the situation in Knowsley, bearing in mind that Knowsley has not only been in line with the English average of changing spending power this year, but has a spending power of £3,122 per dwelling in 2013-14, compared with the average in this country of only £2,216, so credit to him for his ability to try to make a case that Knowsley is being treated in any way unfairly.

[Mr George Howarth]

I am grateful to the Minister for giving way so early in his speech. Does he not recognise that those resources were distributed on the basis of need? My case reflects the fact not that Knowsley is standing with its hand out waiting for the Government to dispense largesse, but that there are high levels of need there.

[Brandon Lewis]

That argument might hold more weight if such areas were not getting almost 50% more than the national average in the first place. Even a constituency such as my own, which has three of the most deprived wards in the country, gets around £2,200. I struggle to have sympathy with the right hon. Gentleman’s argument that getting almost 50% more than the national average is a hardship.

In all the deficit denial and doom mongering that some people have been engaged in, an important message is in danger of not being heard. However, the recent move by Moody’s has once again reminded us of that message. The size of the deficit and the simple fact that local government accounts for a quarter of public spending mean that local government cannot remain immune. It is one of the biggest players in the public sector and it has its part to play in reducing the deficit.

I want to make it clear to hon. Members that this settlement is a fair deal to both the north and the south. Manchester, Liverpool, Nottingham and Newcastle all have higher spending power per dwelling than the national average. I have already commented on the fact that Knowlsey has the highest settlement in its area.

[Mrs Ellman]

Will the Minister explain how it can be fair that the areas with the highest deprivation such as Knowsley and Liverpool—Liverpool is right at the top of deprivation levels—are suffering the harshest level of cuts?

[Brandon Lewis]

I dispute whether that is even correct, bearing in mind that the base point that such areas start from is so much higher than anywhere else. It was the previous Government who left areas with high deprivation, such as Hastings and Great Yarmouth, with a cliff-edge drop in funding of up to 20%, which this Government have had to fix. Places such as Wokingham have been mentioned before in debates on the settlement—Surrey was also mentioned today—but it must be remembered that all the councils under discussion today are at least £500 better off per household than Wokingham is in 2013-14. Knowsley itself is pretty much at the average with regard to its reduction, but it has a spending power of £3,122, compared with an average of just £2,200, so this settlement is fair. Thanks to the new efficiency support grant, the seven authorities that face the biggest hit to their spending power in 2013-14, a couple of which I have just mentioned, are eligible for a funding boost, which ensures that no council faces a spending power decrease of more than 8.8%, despite the previous Government leaving them with one closer to 20%.

Vitally, the system now works in a council’s favour. Through the Localism Act 2011 and the financial reforms in this settlement, some 70% of local authority income will be raised locally. Councils now have more power than ever before, but they need to understand the implications of this settlement and to act in their residents’ best interests and work harder on their behalf. They can do that by redesigning council tax benefit to cut fraud, promoting local enterprise to get people back into work, or redesigning services to make them more efficient and sustainable. There are still savings that can be made. I disagree with the earlier comment about the council tax support position. The money the Government have put in, the opportunities that exist for savings and the flexibilities that have been given to the sector can more than make up for what is needed to be found. Last year, local government showed commendable skill in reducing its budget while still protecting front-line services. Many residents thought services had actually improved. This is about not how much money is spent, but making sure that it is spent in the right way.

[Luciana Berger]

The Minister will know that the leader of Liverpool city council has extended an invitation to the Secretary of State to come to Liverpool to tell us how he thinks more efficiency savings can be found, bearing in mind that we now have to make additional cuts on top of the £141 million that have been made so far. Will the Minister also accept an invitation to come to Liverpool to see for himself the extent of the cuts, bearing in mind the levels of deprivation that exist, and tell us where he thinks further efficiency savings can be made?

[Brandon Lewis]

I suggest to the mayor of Liverpool that some of his language has been extremely unhelpful and somewhat unfair, particularly when Liverpool starts with a per dwelling spending power of around £2,700. Many areas of the country, even deprived areas such as those in my constituency, would be keen to have such spending power. I am happy to come to Liverpool during the course of this year. In fact, I will be visiting the fire service soon, and so will be happy to visit the council as well. I suggest the council looks at the booklet, “50 ways to save money”. Part of taking that local power and being a locally directly elected mayor is about having responsibility. There is that old phrase, “With great power comes responsibility.” Instead of looking to everyone else to solve their own issues, councils should be looking at what they can do locally; that is what local accountability and local democracy are about. Through our community and neighbourhood budgets, we are rewiring the system and bringing people together from across the board—local authorities, the police and the health service. We are seeing such alignment with the whole place community budgets. Areas close to Liverpool and Manchester are finding local savings worth millions of pounds, and providing an opportunity to realign the public sector to make it more streamlined and efficient.

Thanks to the autumn statement, which exempted local government from another 1% top-slice, councils have time to put their house in order and put people first. They should start that process by freezing council tax, which rose exponentially under the previous Government—it more than doubled. We have now put money aside to put tax rises on ice for a third successive year. Already a huge number of councils are doing the right thing, including, I am glad to say, Knowsley, as well as Derby, Dorset, Northampton and Watford. Areas such as Lancashire are going further and actually cutting council tax by about 2%. In many cases, councils have far more in reserves than they are losing through cutbacks. Liverpool, Manchester and Leeds have reserves twice that of their spending power reductions. The local funding settlement used to be the end game, but now it is just the starting point.

[Mr George Howarth]

The Minister and the Government tend to treat reserves as some kind of luxury that local authorities can easily live without. Before I came to this place, I spent several years as the chair of the finance committee on Knowsley council. I am no accountant, but I do know that a council has to have reserves to hedge against unexpected areas of expenditure—perhaps a surge in inflation that they cannot cope with or pay settlements that they were not anticipating. It is prudential to have reserves, not in any way a flagrant abuse of the system.

[Brandon Lewis]

The right hon. Gentleman makes a fair point. It is right for a council to have reserves. However, it is also right to use those reserves at the right time and to keep only a prudent amount of reserves. Many people in this country cannot understand how local government can say that it is struggling when at the same time it has built itself up in the past couple of years, even under these changes and savings, to have the highest level of reserves it has ever had—they have increased to around £16 billion. When authorities such as Liverpool, Manchester and Leeds have reserves roughly twice that of their spending power reductions, I suspect that most residents will have some lack of sympathy with their argument that there is not enough money to protect their services.

Furthermore, councils will be able to retain around £11 billion-worth of business rates, which will deliver £10 billion extra to the wider economy. In recent years, Newcastle, Manchester and Liverpool all saw their business rates rise above the national average of 4.8%, but thanks to the old begging bowl system, they missed out on the opportunity of making the most of that money. That will not be the case in the future; they will get the benefit. It will be about what councils make and not what they take that counts. If they bring in more businesses and more jobs, they will be rewarded. With regard to the comment on the new homes bonus, with more than £650 million being allocated this year, the same applies. If councils build, they will get the money. It does not matter where they are in the country. If they build the houses, they will get the money.

In this settlement, we capture a new ethos in local government. We are looking to generate more income through the new homes bonus, business rates retention and the new transition challenge award where councils that are sharing services and management, and being innovative to ensure that they can spend money on the front-line services can make a pitch for that part of the bid.

The right hon. Gentleman mentioned reserves. What is also important for councillors and council officers to remember is that those reserves are not the council’s money to sit on and protect. The money that councils have is taxpayers’ money to be spent on services for taxpayers. If councils are willing to put people above political ponderance, to look to the future, and not in the rear-view mirror and do things because that is the way we have always done them, they have a once-in-a-generation chance to move forward, finance themselves in a new way, be genuinely local and deliver for their local residents.