Local Authority Funding

Debate between Chi Onwurah and Andy Sawford

Tuesday 3rd December 2013 Westminster Hall

[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.