Local Government Finance

Caroline Nokes Excerpts

Wednesday 5th February 2025 Commons Chamber

[Madam Deputy Speaker (Caroline Nokes)]

We now come to the motions relating to local government finance, which will be debated together.

[The Minister for Local Government and English Devolution (Jim McMahon)]

I beg to move,

That the Local Government Finance Report (England) 2025–26 (HC 623), which was laid before this House on 3 February, be approved.

[Madam Deputy Speaker]

With this it will be convenient to discuss the following motion on council tax increases:

That the Referendums Relating to Council Tax Increases (Principles) (England) Report 2025–26 (HC 624), which was laid before this House on 3 February, be approved.

[Jim McMahon]

The Deputy Prime Minister and I, like many others in this House, have local government in our blood—we are proud public servants. We know what a difference the sector makes every day to millions of people across this country, and how much stronger local government, working in genuine partnership with central Government, can achieve to change lives. I thank the millions of dedicated public servants who work in and for the sector for all their efforts to deliver more than 800 services that local people rely on.

We know it has been a difficult few years, but this statement is an important step towards rebuilding the foundations of local government, ready to meet the scale of the challenge ahead so that we can rebuild our country together as part of our plan for change. That is why I take the responsibility of leading the Government’s work to rebuild the sector with the seriousness and urgency that is, quite frankly, long overdue.

Today, I will set out funding for local authorities in England for the coming year through the final local government finance settlement. Before I do, I want to say that the Government are grateful to all those who contributed to the consultation on the provisional settlement, which attracted 227 responses, including more than 45 from Members of this House.

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[Jas Athwal (Ilford South) (Lab)]

On the point about inner and outer London, the problem is that outer-London boroughs are now seeing inner-London problems, the funding system is archaic and the formula is based on outdated deprivation statistics, using household numbers rather than population. This unfairly impacts boroughs such as Redbridge, which covers my constituency. It is home to many multi-generational families living under one roof—

[Madam Deputy Speaker (Caroline Nokes)]

Order. We simply cannot have interventions like this. They need to be spontaneous; they should not be read out from pre-prepared scripts.

[Jas Athwal]

Can I just make this point?

[Madam Deputy Speaker]

I think the hon. Member has already had long enough.

[Jim McMahon]

In a way, there is commonality across the House in recognising that particular problems really ought to be taken into account when it comes to local government funding, and if it is got right—our intention is to get it right—it will take into account up-to-date population and deprivation statistics. It should take into account the ability of a local authority to raise tax locally through council tax, or through business rates or fees and charges. It should take into account the cost of delivering services, whether that is about the rental costs of acquiring a space to operate from or even the cost of delivering services in areas such as rural or coastal communities, where there are particular issues. The formula should take that into account, so let’s work through that.

We are responding to the pressures, which is why we are making £3.7 billion of extra funding available for social care authorities. That includes an uplift of £880 million in the social care grant, which includes an additional £20 million that I have confirmed today for the new children’s social care prevention grant, taking the total for that grant to £270 million. That paves the way for the national roll-out of transformed family help and child protection services. We have doubled settlement investment in preventive children’s social care to £500 million next year. If we do not reform the system and focus on prevention, we will continue to pay more and more, too often for worsening outcomes.

This is happening alongside the Education Secretary’s work to take forward the Children’s Wellbeing and Schools Bill, which will crack down on profiteering and improve child protection—something that the Tories failed to do, at a very dear cost to taxpayers, who were left to pick up the bill. Again, the severe pressures on SEND services came across loud and clear during the consultation. As we have announced, we are boosting SEND provision and alternative provision by an extra £1 billion to start to return the system to financial sustainability and to improve outcomes for young people. We are aware of the impact that dedicated schools grant deficits are having on council finances, which is why we are committed to working with councils, parents, teachers and schools to transform SEND provision and the life chances of the children who need it.

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[Kevin Hollinrake]

We all have different views on this matter. Many parts of my constituency are not wealthy and have deprivation that is not sufficiently catered for by some of the formulas. That is what we are concerned about. We are keen to see fairness across the board, so we will scrutinise Labour’s plans very carefully on that basis.

The Labour Budget promised a big increase in council spending and the return of the sector to sustainability through a comprehensive set of measures to support local authorities in England. As I said, the Government also promised multi-year settlements, and we support those intentions. However, most of the money provided to local councils under the settlement will be through council tax rises for working people. A number of the rises breach the 5% referendum limit principle. Referendums on council tax rises of up to 9.9% have been waived by the Secretary of State, so local people cannot have a say on these dramatic increases. That means that local residents in the Windsor and Maidenhead borough, Birmingham, Bradford and Newham all face increases of more than 5%. Birmingham is notable due to the mess that Labour made there, which Labour is now forcing residents to pay for, rather than taking responsibility. The Liberal Democrats are also raising council tax without allowing Windsor and Maidenhead borough and Somerset residents a say on how they feel about the increases.

Council tax rises make up the bulk of the settlement, and rather than Labour delivering on its claims that it would fairly fund local government, it is pushing the burden on to taxpayers. The Government have also increased that burden with their jobs tax, which will negatively increase costs on local government finance. Although they have provided £515 million to cover the direct costs of employer’s NI, the Local Government Association has estimated that the national insurance contribution hike will cost another £1.13 billion for increases being forced upon providers of outsourced services.

The costs of those outsourced services will inevitably increase, but the Government are providing no money to cover that. Councils and residents will have to pick up the bill. Council tax receipts in 2025-26 are forecast to be in the order of £50 billion, yet Labour’s nonsensical Chagos islands deal is rumoured to cost up to £18 billion. That is equivalent to a one-off £820 deduction from a typical council tax bill. Alternatively, it could have paid for a council tax freeze for the whole of this Parliament. As with all things, Labour is wasting taxpayers’ money rather than giving them a tax cut.

The settlement will make it more difficult for councils to deliver on residents’ priorities, be they social care or potholes, which I note Conservative councils have a better record of filling in. It is an undeniable fact that Labour and the Liberal Democrats deliver worse services and charge more. From Whitehall to town hall, under Labour, people pay more and get less.

[Madam Deputy Speaker (Caroline Nokes)]

I call the Chair of the Housing, Communities and Local Government Committee.

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[Ellie Chowns (North Herefordshire) (Green)]

I welcome some aspects of what the Minister is proposing. It is important to not always fire political shots at each other and to look for common ground and give credit where it is due. I have said this to him before, but I really welcome the moves that the Government are making towards multi-year funding settlements. It is so important to move away from the hand-to-mouth, year-to-year, jam-jar approach to funding—particularly capital funding. That ridiculous competition between local authorities over an ever-decreasing pot of funding has been so damaging, so those moves really are things to welcome.

But—there are quite a few buts about the local government finance settlement, but I will focus on just three. I represent the wonderful North Herefordshire constituency. Herefordshire council has received a settlement that is well below the national average, well below the average for comparator councils, and well below what is needed to provide the services that residents need and deserve. An interesting element of the debate has been some Members seeking to pose a binary conflict between rural and urban authorities. I want to get away from that—it is really unhelpful—but it is important to recognise there is serious deprivation in rural areas, not just in income but in access to services.

The hon. Member for Glastonbury and Somerton (Sarah Dyke) talked eloquently about the fact that sparse populations, long distances and poor transport networks all hugely increase the cost of delivering services such as social care or home-to-school transport. That is the impact of geography, but demography is also an issue. Herefordshire has 50% more over-65s than the national average, which has a knock-on impact on the cost to local government of delivering crucial services.

It is absolutely crystal clear that although the Government have taken away the rural services delivery grant, which they perhaps viewed as yet another jam jar, they have not replaced it in the new formula with a fair allocation of funding on the basis of rurality. I beg the Minister to revisit that issue when he comes up with the multi-year funding settlement. Otherwise, the serious problem of rural areas having their specific elements of deprivation under-recognised in the funding formula will build up so many other problems into the future. [Interruption.] I can see the Minister is nodding. I thank him for that and warmly invite him to Herefordshire so that we can show him, face to face and on the ground, the challenge of providing those services. That was “but” No. 1, regarding rurality.

“But” No. 2, which relates to the impact of the rise in employers’ national insurance contributions, has been referenced previously in this debate. I appreciate the nuance with which the Minister answered questions on this issue earlier, and his recognition that it is a really serious issue and that the funding settlement does not fully acknowledge it, particularly the on-costs, because so much of what local authorities do is done not just through the staff they employ themselves, but through commissioned services. I am sure that Members across the House have been inundated with correspondence from charities and businesses working in sectors such as the care sector that are desperately worried about the effect of the increase in employers’ national insurance contributions on their ability to provide those crucial services—so often commissioned by local authorities—to local people. When the Minister is doing the multi-year funding formula in future years, will he please address that issue and ensure that those costs are fully integrated into the calculation?

My third “but” was also touched on earlier. The Minister expressed doubt about whether cross-party agreement could be reached on this matter, but there seems to be quite a degree of consensus across this House that council tax is a broken tax—it is a broken funding system. It is outdated, regressive, unfair, and way overdue a review. We are charging people based on an assessment of property rates that were set 35 years ago and have never been updated. Council tax is crying out for a fundamental review, so will the Minister please commit to undertaking that review, working across parties and across the House to find a much fairer and more sustainable long-term approach to raising local funding?

[Madam Deputy Speaker (Caroline Nokes)]

I call the shadow Minister.

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[Madam Deputy Speaker (Caroline Nokes)]

The hon. Gentleman knows full well that that was not a point of order. It is at the Minister’s discretion whether she wishes to take an intervention. I am sure she is coming to her closing remarks.

[Rushanara Ali]

Thank you, Madam Deputy Speaker.

Once again, I thank hon. Members for their valuable contributions, even if we do not always agree. The point is that we can all agree that there is much work that needs to be done.