Local Authority Funding

Chi Onwurah Excerpts

Tuesday 3rd December 2013 Westminster Hall

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Mr Streeter, it is a great pleasure to serve under your chairmanship for the first time, particularly in this most important debate, which I was delighted to secure.

Local government finance holdbacks may not, on the face of it, be the most exciting subject to be debated in the House, but the issue is central to the daily experience of so many of our constituents. Indeed, for my constituents in Newcastle upon Tyne Central, this is probably the most important debate that I have secured. It goes to the heart of the delivery of public services—services that are delivered mainly, and increasingly, by local councils—and ultimately affects how many potholes are filled, how many homes are built and how well our buses are run.

I have come here not to ask the Minister for more money, although if he has found some that would be great, but to examine how we might best use what we have and how we can ensure that fairness, which is so ingrained in British values and culture, is at the centre. I hope that he will engage with the debate constructively and that he will not use the autumn statement and the upcoming settlement announcement to hide from what I am sure he knows are the serious concerns of councils throughout the country, of all political persuasions.

We can agree, at the outset, that we all want a system of local government financing that is fair, transparent and allows councils to plan ahead, as far as possible. Although I will speak mainly about the impact on Newcastle, the issues we face there are the same as those faced by many councils across England, particularly, but by no means exclusively, in urban areas.

Shortly after the election, the Prime Minister said,

“This government will not cut this deficit in a way that hurts those we most need to help, that divides the country, or that undermines the spirit and ethos of our public services”.

I was so pleased to secure this debate, because that is exactly what the current local government finance proposals will do. We in this country pride ourselves on a sense of fair play. Fairness is, these days, the political centre ground and everyone wishes to position themselves on it. This Government are finding that if a policy, such as letting energy companies hike up energy prices in the midst of a cost of living scandal, is seen as unfair, you lose—except, perhaps, if that policy is wrapped up in enough accounting doublespeak and councils are blamed for not implementing what the Association of North East Councils has called “impossible cuts”. It seems that, if that is done, one can get away with it. ANEC says that, since 2011, councils have seen a one third reduction in funding—a staggering amount—and estimates that by 2017 funding will have been cut by 50% in real terms.

I emphasise that this debate is about not the overall spending level—I know that the Minister does not decide that—but how we distribute what we have. Analysis of the Government’s proposals for the next local government finance settlement by the special interest group of municipal authorities, which is a group of urban councils within the Local Government Association, found that municipal authorities

“started off from a position of disadvantage; have borne a disproportionate burden of cuts under the Spending Review; and carry the greatest risk of the highest cuts in the future.”

The insidious nature of this Government’s top-slicing and holdbacks in particular will have an impact on services for people struggling through the cost of living crisis in Newcastle and similar towns and cities.

Councils must be in a viable financial position if they are to fulfil the statutory burden that Whitehall places on them. On top of that, we expect them to be—indeed, we insist that they should be—active partners in driving forward economic growth, yet the north-east has endured the biggest cuts, with higher reductions in spending power than the national average. In the spending review, we were told to expect 10% cuts in core funding, yet the north-east is now looking at a real-terms cut of 25% when social care costs are included. That is putting public services under severe strain.

At the beginning of the year, the Department for Communities and Local Government estimated that next year Newcastle would see a cut per dwelling of £126, compared with an average cut in England of £75 and a cut in Wokingham, for example, of £19. It later emerged that those figures for Newcastle were significantly understated. At a time when demand for services in the north-east is increasing, why does the Minister think that targeting areas with higher levels of deprivation to make savings is the fairest way to implement these cuts? Will that not hurt

“those we most need to help”,

to use the Prime Minister’s words? I urge the Minister to respond to that question in particular and I am sure that he will.

Has the Minister considered allocating cuts to councils by an equal percentage, based on spending power? Would that not be fairer? If not, why not? By what process did he decide that his current proposals are fairer and will not disproportionately hit the most deprived? I ask him to publish any evidence that is to the contrary of the Audit Commission’s report, among others, which sets out how deprived areas will suffer more than wealthier ones and to which Sir Merrick Cockrell, the Conservative leader of Kensington and Chelsea council and chairman of the LGA, responded:

“The report highlights a significant variation in the impact of the cuts at a local level, with a number of places taking a disproportionately heavy hit. It provides yet more evidence that the existing system of funding is too exposed to the vagaries of national politics and incapable of delivering the long term certainty that local areas need to deliver consistently excellent services.”

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

My hon. Friend is making a powerful speech. Does she agree that, in addition to the cut in revenue support grant for Newcastle upon Tyne Central, there has been a disproportionate cut in the revenue support grant for Oldham, a metropolitan area with two Members of Parliament? In fact, in 2014-16, that will have decreased by £36.8 million, which will, unfortunately, not be recouped by the new homes bonus, for example, which has raised just £700,000. I support her argument. Does not that cut put dreadful pressure on the council, which provides services such as social care, and does it not impact on constituents?

[Chi Onwurah]

I had the pleasure of visiting Oldham not long ago, and my hon. Friend is absolutely right to highlight the disproportionate cuts that Oldham is suffering under this funding approach. I will speak about the new homes bonus shortly. The Government claim to be giving money to councils such as Oldham and Newcastle, but they are in fact taking away far more than they are giving.

The Audit Commission estimates that one third of councils, many of which are in the most deprived areas, are at risk of financial failure in the medium term under current proposals. An equal percentage cut based on spending power would bring significant benefits to many of those deprived areas across the country, not only in Newcastle and London but in the north-west and the shire counties and districts.

Children’s social care is an area of particular concern as we see growing need and reduced funding. In Newcastle and the north-east, there are real and growing concerns about the pressures on children’s services. Indeed, I recently looked at a website containing anonymous reports from social workers working in children’s services, and it was a frightening insight into the pressures that they face.

The number of looked-after children is growing at 11% nationally, with higher pressures in the north-east. Councils have seen a 4% cash increase in costs, but DCLG and the Department for Education have cut children’s social care funding by 30%. Children’s social care assessment was cut by 30% between 2010 and 2013-14, which is about four times the assumed cut, while the number of looked-after children has increased by 31% in the north-east since 2009. Budgeted spending on children’s social care rose by 4% nationally, but by just 1% in the north-east.

When ANEC raised concerns, the response by Ministers at the Department for Education was that councils would have to find the cuts “somewhere else.” It is difficult to see how a further 25% cut in core funding in the north-east can in any way be justified. How can it be taken out of children’s services over the next two years? Will the Minister explain why spending on children’s social care has been cut so much when the levels of need are increasing?

Ministers like to come up with complex formulas for giving money to councils that tend to benefit wealthier authorities, but when it comes to cutting money, Ministers are increasingly turning to crude holdbacks and top-slicing from the central revenue budget. It is possible that not everyone here is familiar with holdbacks. Indeed, I confess that, prior to entering Parliament, I did not follow the intricacies of local government financing with as much attention as I possibly should have. I dread to think how much excitement I have missed as a result.

A holdback is when Ministers or civil servants decide that money allocated to councils will literally be held back by Whitehall for a specific purpose or on a certain condition, which, again, disproportionally affects the most deprived councils. Money is being cut from the central pot, the revenue support grant, which automatically means that councils with the highest need lose out the most. If the Minister decides that he wants to hold back £500 million, for example, it comes from the central budget, which means that all councils lose a slice. The councils that would have received a bigger slice, because they have greater need, lose out more. A holdback of £500 million would mean that Newcastle loses £4 million, whereas Wokingham loses only £400,000. That is a £32 cut per household in Newcastle and a £6 cut per household in Wokingham. Authorities such as Hackney and Birmingham are even worse off, at £50 and £37 per household respectively. All authorities would then get some money back, but if the funding is skewed to favour wealthy authorities, as it so often is under this Government, the effect is a budget transfer from poor to rich, which is Robin Hood, disguised as a Whitehall accountant, in reverse. That is not a pleasant sight.

Parliament has decided that the money should be used to fund councils for services that they have a legal duty to provide. SIGOMA, ANEC, the Audit Commission and the Joseph Rowntree Foundation have all highlighted the problem, so will the Minister explain whether he agrees with their analysis? With what does he disagree? Why are the Government increasingly using holdbacks to fund projects?

This week, we have been reading in the papers that on Thursday the Chancellor plans to cap business rate rises. With small business Saturday this weekend, it would surely have been more appropriate and beneficial to local economies if he had stolen another Labour policy by cutting and then freezing business rates. The Chancellor should not feel shy.

When councils were told that business rate takings were to be localised, thereby shifting the risk on to the councils, I do not think they expected that any potential reward would be offset by equal cuts to their revenue funding. The business rate safety net is yet another example of how unfair holdbacks can be for poorer areas. Will the Minister tell us whether the business rate safety net is flawed? Was it designed on purpose so that councils such as Newcastle end up funding shortfalls in business rate takings in Westminster by a staggering amount?

The safety net—again, this a technical description of a complex area—provides funding for any council for which business rate receipts fall more than 7.5% below its baseline funding level. The safety net is funded by a levy on councils for which the increase in revenue from business rates outstrips the increase in its funding level and holdbacks.

A holdback of £25 million was originally created to fund the difference between levy funds and safety net payments so that all authorities would fund the safety net. The history is quite complex, but what is crucial is that, because the estimated levy amount has proved inadequate, the top-slice holdback has been increased to £120 million next year. That is a staggering increase, and SIGOMA says that, because of the system’s design, Westminster city council will claim more than two thirds of the national £79 million safety net pot next year. That is two thirds for one of the richest councils in the country. Again, funding is disproportionately going from poorer areas to richer areas.

[Mr Clive Betts (Sheffield South East) (Lab)]

I congratulate my hon. Friend on securing this important debate. I am sorry that I cannot stay until the end.

Anticipating what might come on Thursday, and assuming the Chancellor is minded to go some way towards assisting small businesses by freezing business rate increases next year, does my hon. Friend agree that it is essential that the Chancellor makes it transparent that any costs should be borne by the Exchequer, not by local authorities? Given the sleight of hand that she has just described, we want that spelled out in crystal clear terms to assure us that it is being done.

[Chi Onwurah]

My hon. Friend makes an excellent point, as always, and he is absolutely right. I have lost count of the number of occasions that I have heard Ministers announce funding for my local authority—I will give the example of the new homes bonus in a minute—that is actually a cut in funding more generally. If the autumn statement on Thursday is used to announce any further support for business rates or for local authorities, I am sure that the Chancellor will set out transparently exactly where the funding will come from. If he does not, I am sure that parliamentary questions will follow.

I could consider the approach to be an error, mistake or one-off, but several holdbacks have had a similar effect, and the new homes bonus is one of the most important. Money is top-sliced from the revenue budget—everyone’s budget—but then finds it way predominantly to the wealthier parts of the country. I always thought that a bonus was something extra on top of a payment.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

As well as.

[Chi Onwurah]

Exactly. I thought that that was inherent in the term. Ministers in this Government, however, fund their bonuses not only from existing money, but from existing money that some might argue is not theirs.

The new homes bonus increases cumulatively for six years and is estimated to peak at some £2 billion. The increases are funded by deducting the increase from the revenue support grant, so it favours authorities in wealthier parts of the country, owing to their higher house prices and relatively low reduction in needs-based funding. Although Newcastle loses £5.3 million through top-slicing to fund the new homes bonus, it is given back only £2.2 million. The Minister gets to put out a press release saying that he is generously rewarding the council with £2.2 million, but nobody notices the reality that Newcastle has actually lost out by £3 million. Wiltshire, for example, will have seen a net gain of over £4 million. At the same time, my surgeries and mailbox are testament to the fact that the lack of affordable housing is a critical issue for my constituents.

The new homes bonus is unfair and does not work, which has been confirmed by the National Audit Office and the Public Accounts Committee. Does the Minister intend to press ahead with it? Newcastle city council and the Association of North East Councils have called for it to be frozen at 2013-14 levels. What is the Minister’s view? It would allow him to return some of the planned holdbacks to core funding and to relieve some of the pressures that Newcastle and other councils are facing.

[Mr Betts]

My hon. Friend is making a good point about the new homes bonus, which is one of the original and probably largest holdbacks, and she is right to draw attention to the Public Accounts Committee report. As she says, the key is in the title—new homes bonus. It is not a bonus, and the Public Accounts Committee decided that there was no evidence that it had led to the building of any new homes.

[Chi Onwurah]

My hon. Friend makes an excellent point. I was in the Chamber when it was revealed that the new homes bonus’s purpose was not to build new homes, which reveals a subtlety of language that I confess is beyond me. It is clearly of concern, and I am sure that the Minister will explain not only what the bonus is achieving, but how we can ensure that it is more fairly distributed, so that Newcastle and other authorities are not disadvantaged.

Will the Minister also explain why the figure in the settlement paper for 2015-16 is £210 million higher than that quoted in the new homes bonus consultation, which was based on an estimate from the National Audit Office? Would he consider using the National Audit Office figure? The Local Government Association estimates that £210 million would cover the cost of filling 4 million potholes or 30% of the country’s street-cleaning bill for a year. It would be good to know what has happened to and what is being done with that money.

Finally, I want to discuss the stability and transparency implications of the Government’s use of holdbacks. It is essential that councils get consistent figures when planning budgets. Newcastle city council has identified several other holdbacks, amounting to over £550 million next year and a massive £1.5 billion the year after, that would be better either returned to core funding or funded through other means. The holdbacks include capitalisation, the collaboration and efficiency fund, the fire transformation fund, the independent living fund, the troubled families fund and the money for the new social care burdens. I would welcome the opportunity to discuss them in more detail with the Minister if he feels that he does not have the time to speak to each today.

[Debbie Abrahams]

I congratulate my hon. Friend on securing the debate and on her speech. We are really getting to the nub of the issue. Although we have been discussing cuts to council funding, it is ultimately about the cuts to services and the impact on our constituents’ lives. The independent living fund and the social care issues, with a particular focus on children, are affected, but so are adult carers. People’s lives are being detrimentally affected, but it does not seem a priority for the Government.

[Chi Onwurah]

My hon. Friend is absolutely right. I pay tribute to her for the passion that she brings to the subject.

As I said at the beginning, the subject appears dry, but my post box and surgeries reveal the daily impact of cuts to the funding of services and the progressive and cumulative impact on the lives of often vulnerable people, who find not only an impact on housing and social care, but that their streets are not as clean, that their environment is more depressing and that schools do not have the same resources. That impact is partly a consequence of holdbacks. These dry financial mechanisms are holding back the services that my constituents and so many others need. We need to focus on that. It is important that the Minister identifies and explains why this is happening and what he can do to stop the impacts that we are talking about.

I have one overarching point for the Minister. The mechanism is regressive and effectively moves money to better-off areas, but it is also opaque and severely limits councils’ ability to plan in advance. Will he work to ensure that future rounds of local government finance settlements are conducted more transparently? Ministers have found ways to give varying protection to some more visible services, but that increases the pressure on other funds. When the Minister chooses to protect London transport funding by 6%, money for children’s social care and libraries is squeezed in Newcastle.

I want to bring the Minister back to the Prime Minister’s quote about tackling the deficit:

“This Government will not cut this deficit in a way that hurts those we most need to help, that divides the country, or that undermines the spirit and ethos of our public services”.

Does the Minister think that the Government’s approach to local government finance has been fair and in the interests of councils’ ability to plan for the long term?

I urge the Minister to listen to councils throughout the country, to find an alternative way to reduce the additional cuts by reducing council holdbacks and top-slices. That will help all councils to prevent further unnecessary service cuts and job losses. It will also help them to stabilise their finances, at a time when one third of them face serious financial failure in the medium term.

Two weeks ago, I visited St Paul’s Church of England primary school in my constituency and was given an excellent tour by the head, Mrs Judith Sword. I also held a question-and-answer session with the year 6 pupils. One of them asked me why the council did not spend its money better, so that the libraries could stay open. I explained that the council was losing a third of its budget, or more than £100 million—at that figure, there was big “Oh!” of shock in the room—but that it had consulted more than 50,000 residents to decide the fairest way to implement the cuts. I did not add, because I did not want to over-complicate my answer, that there was not really any such thing as the council’s money any more, because so much of it was being held back by the Government and redirected to other purposes, so that the council could not plan. I hope that the Minister understands how unfair that is to the children and adults of Newcastle and, indeed, to all the children and adults in our constituencies throughout the country.

--- Later in debate ---

[Andy Sawford]

My hon. Friend is absolutely right. She has considerable expertise in these matters, and I have heard her speak frequently about them in the main Chamber. In my area, the A and E crisis, which means that many people have to wait more than four hours, is happening because the hospital is running “hot”. I do not know whether you have heard that term in relation to your local hospital, Mr Streeter, but it means that the beds are full, and that is partly because there are no social care beds. The services that should help people to return home are not being put in place properly or quickly enough to do that. These things are very much linked, and I hope the Minister will acknowledge that in a way that other Conservative Members have failed to do in some of our debates on health care, and on the impact of local authority funding cuts on a much broader range of public services.

We have quoted Sir Merrick Cockell, the LGA’s Conservative leader, who has called the cuts “unsustainable” because of their scale and pace and the rising demand we have highlighted. The Conservative leader of Kent county council has also said that his county cannot cope with further reductions, and that it is “running on empty”.

Ministers know that local government is the most efficient part of the public sector—the Prime Minister has said so—but they have decided to reward councils for that efficiency by cutting more from them than from any other part of the public sector. Indeed, the Secretary of State for Communities and Local Government approached the Star Chamber to bid for that substantial cut to local authority funding.

The Institute for Fiscal Studies is clear that the total cuts to local government spending will outpace those in the public sector as a whole, and the situation will get worse, not better. The LGA’s excellent report, “Future funding outlook for councils”, incorporates the 10% cut in this year’s spending review, which comes on top of the 33% cut that councils face over this Parliament, and that includes the issue of holdbacks, which I will come to in more detail.

The Minister will no doubt tell us that there has been a 2.6% cut—I hear those figures all the time, and I heard them again on “Look East” just the other day. At the same time, the leader of Norfolk county council was talking about what, by anybody’s measure, was a cut of a third to the council’s budget. Councils simply do not recognise this 2.6% figure; it does not stand up to scrutiny.

The black hole will get bigger: by 2020 there will be a £15-billion black hole in the finances, but the Secretary of State talks about council cuts as though they are modest. I do not think that it surprises any of us when Conservative council leaders raise complaints with the Prime Minister about the language being used, and the reality gap between how Ministers at the Department for Communities and Local Government talk about the level of the cuts, and council leaders’ experience of trying to deliver public services around the country. I have spoken to the leader of Northamptonshire county council. He is a Conservative politician, but we have a constructive dialogue about how we are grappling with huge changes. For example, he is currently scratching his head about how we will sustain Sure Start and children’s centre provision across the county, and how we will continue to provide libraries across a large county.

Leaders of any party know the reality out there, but the Government will not listen to the warnings. They will not listen to the National Audit Office, which has said that cuts are having a direct impact on front-line services. The myth created in the early days of the coalition—that everything could be achieved through efficiencies—simply does not match up to reality. The NAO says that 12% of councils are at risk of being unable to balance their books. That will have disastrous consequences.

The Minister told me in a written answer last week that a response to the Public Accounts Committee report on the financial sustainability of local authorities had been published in September. I cannot find that response, and would be grateful if he could draw my attention to it more directly. It seems that the Government simply do not know how they will respond when councils fall over. The permanent secretary to the Department for Communities and Local Government, when questioned by the Public Accounts Committee, said that councils have a duty to balance their books. Ministers are relying on a statutory duty in the face of reality.

Of course, we know that councils will do their very best, because they will want to ensure that they comply with the law. They will be well advised by their monitoring officers and finance officer. Councillors will want to balance the books. They will know that that will be audited by the new independent local auditor, so they will have to do it—and we know how they will do it: by turning off the street lights; by further cutting social care; by ending the use of the local swimming pool; by closing the libraries; and by stopping maintaining the streets. If they have to, against the Secretary of State’s best wishes, they will do it by stopping some bin collections, which will affect our recycling rates. They will do it by cutting services around the country.

Some councils will find more quickly than others that they need to balance the books. They will not be councils in the north of England only, although many councils there will find themselves in particular difficulty. It is one of the poorest regions in the country, and my right hon. Friend the Member for Newcastle upon Tyne East and my hon. Friend the Member for Newcastle upon Tyne Central are to be congratulated on highlighting the impact on their region, as the Association of North East Councils has also done very powerfully.

Councils all around the country will be affected. We are told that Tory-led West Somerset will be one of the first councils that will have to close its doors and will simply not be able to balance the books. As I understand it, there is an idea that such councils will be taken over by their neighbours. I think that that is the Government’s way forward: the neighbours will step in. However, although I am a co-operator, I must say that when faced with a neighbouring authority that is about to fall over, it would not be prudent of any hon. Member to encourage their own local authority to take on the burden of financial responsibility. The crisis has been created by central Government, and they must face up to it and tell us what their response might be.

[Chi Onwurah]

I thank my hon. Friend for the excellent speech he is making; he is highlighting several points that I did not cover. Is he aware that when the Secretary of State acceded to his post, he is said to have banned the use of the word “regionalism” because he did not believe in regions? He wanted instead to focus on localism and localities. Is it not therefore ironic that, by cutting funding so much and taking control of more of it centrally, he might cause local authorities to be taken over by other local authorities, thus attacking the communities he is supposed to be supporting?

[Andy Sawford]

My hon. Friend is right that the sense of regional awareness in places around the country is derived from all sorts of things. Sometimes it is economic or cultural connectedness going back over time, or derives from the links between industry across an area. However, in some areas of the country, over time, some of that sense of regional awareness has come from regions feeling that the further away from London they are, the less the Government are concerned about the people there, and the more unfairly they have been treated. I am a strong supporter of the Better Together campaign. I hope that Scotland and England remain together, as do many of my Scottish constituents. However, it was not a huge surprise to me to see only the other day a newspaper article saying, “If Scotland goes, can you take the north with you?” People in the north feel that the Government simply do not understand the impact of the cuts.

Communities are told to become more independent; the rationale that the Government present to us is that they are over-reliant on central Government funding. Communities are seeking to become more independent by promoting their economies. What do the Government think is happening to the economic development function of local authorities around the country? What do the Government think has happened in the absence of the strong role that One North East previously played in promoting economic development in the north-east? That strong economic development role, that drive that local authorities can provide, is no longer there as it once was. I pay tribute to people such as the leader of Newcastle city council, Nick Forbes, for trying to ensure that his city has a bright and economically prosperous future, but the Government are making that task harder, and I hope they recognise that.

The impact of the cuts falls on both statutory and non-statutory services. Too often it is assumed that statutory services will be safe, as it is by the permanent secretary to the Department, who says that because it is written in law that councils have to balance the books, it will happen. Too often it is also assumed—by campaigning organisations and commentators on local authority finance—that statutory services will continue to be provided and will be safe because they are a legal requirement. However, the truth is that councils are already having to look at the eligibility criteria. For example, the duty placed on local authorities in the 1960s to provide for an efficient library service will have to be interpreted in new ways by local authorities in future. Frankly, it will have to be interpreted in ways that do not meet local communities’ real aspirations for those services.

We know that statutory services will not be safe, and we also know that the burden will fall particularly on the more discretionary services. However, the discretionary services, such as cultural services, are no less important. Over the river from my right hon. Friend the Member for Newcastle upon Tyne East, and my hon. Friend the Member for Newcastle upon Tyne Central, in Gateshead, there are iconic cultural attractions, as indeed there are in Newcastle upon Tyne. As a student at Durham university, I enjoyed the cultural offer in Newcastle many times. These things are vital to local economies and to the health and vibrancy of the community. They are part of what a prosperous community in the 21st century should be all about. Local authorities have a vital role in enabling such things and ensuring that they are present in a community, but we know that around the country they will be the first to go.

We must be honest about what would have happened were a Labour Government now in power, as we come out of a period of global recession. Resources were rightly used to help keep young people in work—for example, through the future jobs fund—to keep our vital industries going, and to keep people in their homes to avoid the scandal of home repossessions that we saw in Conservative recessions in previous decades. The Government rightly tried to maintain jobs and the economy. A Labour Government would have come into a period, in this Parliament, in which we would need to look at how to balance the books. Our proposals differ very much from the Government’s. The Government’s proposals have gone far too far and go about things in the wrong way. Front-loading has had a particular impact, resulting in, for example, the perverse problems we have described in our health services.

Above all, however, we know that the effect of the Government’s proposals over three years was to grind the economy to a halt. We are told that there has been a huge increase in private sector employment. Many of those private sector jobs are transfers from the public sector, because of the cuts in recent years. Where they are genuine private sector jobs—indeed, where they are public sector transfers—we often find that people are on zero-hours contracts, employed through agencies in insecure jobs on low wages. The Government have removed any enforcement of the protections afforded to those people. They have less money in their pockets and are less able to contribute to the local community, thereby compounding the problems that local authorities face in their community leadership role around the country. That has been the impact of the Government’s proposals. We simply would not have done things in the same way, and we would not have done things in such a fundamentally unfair way.

It is not just organisations such the Association of North East Councils or SIGOMA, the special interest group of municipal authorities—SIGOMA provided us with a helpful background briefing, for which I am grateful—making this point. The Audit Commission, which provides independent commentary, has highlighted the unfairness, stating that

“councils in the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than councils in less deprived areas.”

In 2014-15, the 10 most deprived local authorities in England will lose six times more than the 10 least deprived local authorities, as compared to 2010-11. The councils that will suffer the biggest cuts in spending power per head—that is the Government’s own manipulated measure, which is designed to mask the real impact—are Liverpool, Hackney, Newham, Manchester, Knowsley, Blackpool, Tower Hamlets, Middlesbrough, Birmingham and Kingston upon Hull. Those are some of the most deprived communities around the country. I would add Newcastle to that list, as another deprived community; there are particular needs in Oldham as well. Those communities should be properly recognised in a fair funding formula.

My hon. Friend the Member for Newcastle upon Tyne Central points out that her region—although, as she said, the Government do not like that term—has endured the biggest cuts. There are communities with high levels of deprivation and particular needs in London, and some of the most deprived wards in the country are in the heart of Corby in the midlands, but when we look at the map of the impact of these measures across the country, it is clear that money is going from north to south, and from poorer to more affluent areas. The Prime Minister’s local authority, West Oxfordshire, is one of the least deprived in the country, ranking 316th out of 325 in the indices of multiple deprivation. It is getting an increase in spending power of 3.1%; that is extraordinary. We know that this is not an accident, but a deliberate strategy by the Government to shift funding. The problem is compounded by holdbacks, which my hon. Friend the Member for Newcastle upon Tyne Central rightly raised as having a further significant unfair impact on particular local authorities. That is partly, as we know, because of the impact of the new homes bonus.

The cut to local government in the 2015-16 spending settlement appears to be around 5% greater than the amount stated in the spending round of 2013. The Local Government Association’s analysis is that there will be a 15% real reduction for most local authorities, as opposed to the 10% claimed by the Government; the analysis by SIGOMA and others is that the real impact will be higher. Will the Minister at least accept the analysis of the cross-party Local Government Association, which has no particular political axe to grind?

The Government’s announcement on funding with regard to holdbacks has caused particular issues because of the scale and pace of the increase in the number of holdbacks announced for 2015-16. The original figure for the new homes bonus was £800 million of holdback; I understand that remains the same. The holdback for the safety net around business rates was originally proposed to be £25 million, but the revised proposal is that it will now be £120 million. I understand that there are additional holdbacks on capitalisation as well. The net effect of the changes is to add £180 million to the holdbacks.

The Select Committee on Communities and Local Government looked at the issue recently, and said that holdbacks were making it impossible for councils to set budgets. As local authorities are having to make incredibly tough decisions, consultation is even more important, but giving short notice of the huge cuts in funding makes it really difficult for local authorities to hold genuine consultations with communities.

The increase in the amount retained for the safety net for business rates from £25 million to £120 million has caused particular concern. At a recent hearing of the Select Committee, the hon. Member for South Derbyshire (Heather Wheeler) described the safety net increase as “a huge jump”, and said that arguments that all the money would ultimately be returned to local government did not make sense, asking:

“How can councils budget when decisions like this are being made?”

Remember, that comes from a Conservative member of the Committee.

I understand that Sir Bob Kerslake, the permanent secretary at the Department, said that the holdbacks represented “relatively small amounts” of the £25 billion total funding for local government. He uses that global figure deliberately to massage the appearance of this issue and make it seem less significant. Some district councils—I know that they are exotic things to some hon. Members, but I have two in my area—will face cuts of £300,000 to £400,000 because of these changes. That is not a modest amount; it is a huge amount from their overall budget.

Similarly, the Select Committee asked why councils were given only three months’ notice of the additional 20% cut. I will quote the hon. Member for South Derbyshire again: she said that it “just does not fly”. Is the Minister going to tell us today that it does fly, or will he agree that the situation is unfair and has compounded the problem that local authorities face?

Does the Minister accept that councils must plan and set their budgets for 2015-16 on the basis of a cut in funding of 15%? The Government say that councils can set their budgets based on taking a risk—although all the risk seems to me to be shifted on to local authorities, given the way the holdbacks are handed out—that the holdback may be 10%. Does the Minister seriously think that that would be a prudent way for a local authority to manage its budget? We know from the work of the National Audit Office that even before the cuts really bite, as they will this year and for the next two years, three in 10 councils have had to take in-year unexpected action to try to balance their books. They have had to reduce service levels, for example, and have had recruitment freezes and emergency renegotiation of contracts with their providers. The NAO’s review was nearly a year ago, so I estimate that the figure will now be higher than three in 10. Given those challenges, does the Minister really think it is prudent to ask local authorities to budget on that basis?

I believe that there is hope. If there is a change of Government in 2015, there will be an opportunity to make a reality of community budgets and Total Place, and to end the silo approach to local authority funding—for example, in relation to care services. We can genuinely integrate services to make the public pound go further. We will back local authorities in taking on new roles—in back-to-work schemes, for example—that could be both financially beneficial to the local authority, if the incentives are right, and beneficial to our communities. There are opportunities for much better dialogue. We need to review the new homes bonus, which is a mechanism to shift resources around the country in an unfair way. I hope that today the Minister will accept the scale of the crisis that his Government have created, and will give us assurances that they will listen to us on holdbacks and accept the real need to review the funding formula across the country, so that when the provisional settlement is announced in just a few weeks’ time, it is fairer.

--- 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.

[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.