Funding for Local Authorities

Clive Betts Excerpts

Thursday 10th October 2013 Commons Chamber

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

First, I congratulate my hon. Friend the Member for Corby (Andy Sawford) on his new responsibilities as a shadow local government Minister, which are well deserved. I am sure he will do just as well at holding the Government to account as his predecessor, my hon. Friend the Member for Warrington North (Helen Jones), whom I congratulate on her achievements in the job and wish success in her new job.

The Local Government Association, whose figures I believe are accurate—it is a cross-party, Conservative-led group—states that in the course of this Parliament, Government funding to local government will be cut by 43% in real terms, which is more than twice the level of cuts experienced across government as a whole. Why is that? I hope the Minister will respond to that question.

Do Ministers somehow feel that the services that people receive from libraries, sports centres, environmental health, parks and street cleaning are less important than anything else? I suggest that they are not. Do they believe that local government is somehow less efficient and therefore has more ability to make cuts without damaging services? I do not think there is any evidence of that—indeed, the evidence has shown the opposite over the years. Local government has generally been more efficient and more effective in bringing about efficiency savings. Or, in the phrase that my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) used, is it simply about the Government contracting out the responsibility for making the cuts to somebody else, namely local councils? I suspect that that is probably the reality. Why have local services been picked out for larger cuts than anything else?

My second point is about the distribution of the cuts. We can argue about that, and everyone will have their own view, but it seems slightly unreasonable that Sheffield, despite all the demand for local services from local people and all its problems and challenges, should have received cuts of about £200 per head of population, whereas down in Windsor the cuts are £40 per head of population—five times less. I know the Minister will say that it is because cities such as Sheffield get more in grant, so they have more grant to cut. However, why have they had more grant than elsewhere in the past? We can argue about fine amounts, but essentially it is because they have more problems, more challenges and less resources than areas such as Windsor. That is true of many northern cities, which are the ones that we expect to be the powerhouse for growth and for rebalancing our economy. They are receiving the largest percentage cuts.

We can add in the cuts to the fire service, and there are also the new proposals that will redistribute health money away from cities such as Sheffield, because there will be less recognition of need in the formulas. Cuts in different services in the same areas will multiply the effects.

It is not just Labour authorities such as Sheffield that are saying that the cuts cannot be sustainable but the Local Government Association and Sir Merrick Cockell, who is a very reasonable man. He speaks well for local government as a whole on behalf of a Conservative-led, cross-party grouping that says the cuts are unsustainable. Those comments have been repeated by Conservative authority leaders such as the one in Kent, who says that there is no more capacity to keep on making cuts while keeping local government services sustainable.

The LGA states that, on top of the 43% cuts in this Parliament, there will be a gap of another £15 billion if the cuts continue to 2020, which local government simply will not be able to find. We know from its briefing—I have also had discussions with it about this—that based on the Government’s current forecast, there are 56 councils whose current levels of spend are 15% higher than their income is likely to be by 2015-16. There is a gap of 15p in the pound between their income forecasts and their current levels of spend, so some of those councils will get into serious financial difficulties. They are not councils of any one party persuasion, and they are not solely in metropolitan or rural areas—they are councils across the piece.

We know that the Department for Communities and Local Government monitors that matter, and we hope it is talking to the LGA about it, because it is a serious problem. The graph of doom has been mentioned, and whereas three or four years ago it was a bad idea that might happen at some stage, it is now a serious prospect.

My hon. Friend the Member for Penistone and Stocksbridge mentioned the situation in Barnsley, and I will obviously talk about Sheffield. There will have been £182 million of cuts between the beginning of this Parliament and 2013-14—the council has had to make those reductions. On top of that, we know that in 2014-15 and 2015-16, a further gap of £80 million will have to be bridged. If we take the projections forward to 2018-19—the Chancellor has indicated clearly his intention that there will be no rowing back from further cuts—there will be another £26 million on top. That money cannot be found without cutting into statutory services, because there is no leeway at all on discretionary services.

The figures that Sheffield council has produced for its current spending show that 38% of the budget goes on care for adults and children. What is often forgotten, however, is the contractual commitments that councils cannot get out of. The whole waste collection and disposal service in Sheffield is contracted to Veolia. Modifications can be made at the margins—there is already an alternate weekly bin collection—but long-term commitments in the incinerator and waste disposal contract cannot be altered. Any change made in such contracts has a financial penalty attached to it.

There is also the new private finance initiative scheme in Sheffield. It is absolutely great—the roads in Sheffield are being repaired, and we are delighted with what is being done. I congratulate the Government on supporting the scheme, which the previous Government drew up, and the council on implementing it. However, that PFI commitment is for the next 25 years and cannot be changed. There are also repayments on borrowing for schools and so on, which cannot be ducked out of. Such contractual commitments and debt repayments make up 46% of the budget, so that leaves 16%.

I have given the figures for the further reductions that are in the pipeline through to 2018-19. By then, the 16% discretionary funding that remains after statutory services, contractual commitments and debt repayments have been taken into account will have gone. There will be nothing left. It is not about which libraries will be closed, because no libraries will remain open. That is a serious situation in Sheffield, which is mirrored in other parts of the country. It is not about one authority somehow failing, it is a potential failure of local government as a whole, not through its own fault but simply because it will not have the necessary resources from central Government and will not be able to raise the money itself. It is a serious situation.

[Ian Mearns]

My hon. Friend is making an excellent speech and highlighting the drastic situation facing many councils, particularly in the north and north-east. I am afraid that when I talk to colleagues on the Government Benches, they often seem completely oblivious to the plight of councils such as my own in Gateshead, or those in Northumberland, Durham, Newcastle or Middlesbrough. Local authorities in the whole north-east region are facing average cuts of about £296 a dwelling in the next two years.

[Mr Betts]

My hon. Friend is absolutely right, but I would add that it is not just Labour councils in the north, with all their problems, that will face that situation. A number of smaller councils in the south and south-west will face almost a meltdown situation in the next few years if the same policy is continued.

[Diana Johnson (Kingston upon Hull North) (Lab)]

In his capacity as Chair of the Communities and Local Government Committee, has my hon. Friend given any thought to the effect on the local economy of the reduction in spend by local authorities? In areas such as Hull that are quite disadvantaged in the first place, cuts to local authority spend and procurement will mean that the ability to get growth into the local economy is cut severely.

[Mr Betts]

There is quite a lot of evidence that there is a real difficulty for local economies. In the past, the larger grants were generally directed at authorities with real difficulties, often in areas where industry had been run down. Those areas often had a higher reliance than others on public sector expenditure, and my hon. Friend is right that the reductions in that expenditure are having a disproportionate impact on those communities. As I said, we are in a serious position. I do not think Ministers recognise where we could be heading—perhaps they hope they might be in another job by the time it happens. We can all wish for better things for ourselves, I suppose.

Let me move the debate forward in a slightly different way. We are where we are, but where will local government go in the future? A bit ironically I suppose, the one good point that might come out of this is that local government is now less reliant on Government grants for funding. Government grants have been cut by nearly half, so a bigger proportion of money comes from taxes that local authorities raise. If we are to look forward to vibrant local government, a less centralised state, and localities being less dependent on central Government for funding, and if we are to be localist and look at the balance of power and the things the Political and Constitutional Reform Committee is doing, we must not simply go back to where we were and recreate the grant systems. We must also consider how we can make local government more financially independent in the future.

There will always be an element of redistribution—we have great inequalities in our country so redistribution will always be necessary—and there will always be a case for some element of Government grant. One problem is that, at present, that element all comes from business rates. Because of that, some sensible ideas the Government have had about localising business rates have become convoluted and complicated because those rates both reward development and try to redistribute from those areas with greater resources to those with the greatest need. In principle, however, that is to be welcomed, although in future we will still need an element of Government grant for redistribution.

Why not take up the LGA’s proposals, give the money to local authorities and allow them to distribute it? That would stop councils simply complaining to the Government that they do not have enough money while others have too much. That happens in Denmark, which has a grown-up system. They sit down and negotiate between local and central Government about the amount of money to be passed over, and local government then makes the redistribution between different local authorities. That has worked for a long time. I would have thought most Ministers welcomed with open arms the idea that they would not be responsible for every allocation to every council in the country. Let us see how radical Ministers can be. The LGA was brave in putting forward that proposal, so let us at least look for radical solutions.

The one tax that local government controls is council tax, which is now virtually frozen because of actions by this Government and the previous one. I want to be critical of them both. We had the nonsense of capping under the previous Government—I spoke against that a number of times in the Chamber—and the nonsense of the referendum under this Government. That is not about democracy but about trying to control local government spending. The idea that central Government should have to call a referendum if they want to change income tax or VAT is clearly nonsense and no Government would ever allow it. Local councils ought to be elected and then free to raise the money. If the electorate do not like it, they will vote for somebody else, and that is what democracy at local level should be about. I am against the referendum proposals and against capping.

[Daniel Kawczynski]

The Labour party is making great play about the cost of living. In previous years we saw massive increases in council tax, year on year. I remember in Shropshire under a Labour administration that council tax went up by 16% in one year, which had a devastating impact on people with fixed incomes. Surely the hon. Gentleman understands the importance of freezing council tax in these difficult times.

[Mr Betts]

Of course I understand that and any council would want to try to minimise increases in council tax. However, let us also make clear that cost of living increases can come from a local library closure because people have to buy books instead of borrowing them for free, or from the closure of a leisure centre when a family has to book into a private club that involves a lot of extra cost. Cost of living increases can come in other ways, including through cuts in public services.

I also argue strongly that it is nonsense to have local government’s main tax based on a valuation carried out in 1991, and it is ridiculous that 20 years on we have not had a revaluation. The previous Government, this Government, and the previous Conservative Government all bottled out—it is all too difficult. In the end, we have a completely unrealistic situation. No one understands the system any more, which is an attack on democracy and accountability.

My hon. Friend the Member for Corby (Andy Sawford) in his new role will probably not want to comment on this point, but if we are to reform council tax and make it fairer, the relationship between the value of properties and the amount people pay should be reformed. Those in very expensive, large houses should pay more, but why bother with a mansion tax? All we have to do is increase the higher council tax bands, and ensure that the money that comes in goes to local government and does not get siphoned off by the Treasury for other purposes. That is why I am against the mansion tax—I put that on the record to ensure that I have been critical of what both Governments have done.

[Ian Mearns]

We have an eight-band system, but it is ridiculous to have a national mean of band D when in a borough such as Gateshead around 65% of all properties are in band A. People in that area in modest properties and on low incomes end up paying much more of their personal income as a proportion of local taxation. That is ridiculous and unfair.

[Mr Betts]

There is a case for review on whether band A should be also split, and there is a good argument for that to make the whole system fairer.

We must also look for other sources of funding for local government. I welcome the report by Mr Travers that the Mayor of London has initiated, which is a good contribution to a debate on how local government should be financed. I am not saying I agree with all the recommendations—the report is about London in isolation, although I am interested that the core cities are starting to engage in the argument, which raises questions about the rest of the country—but it is good that the Mayor has stimulated that debate. He has invited me and other Members to meet him to discuss that issue, and the Communities and Local Government Committee may initiate an inquiry into the matter. At least, however, the issue of how we can get more independent sources of funding for local councils has been raised.

Why not look at income tax again? I remember the Liberal Democrats when they were a radical party putting forward new ideas, not just agreeing with the Conservative party about things. They used to promote local income tax. I disagreed with them then because they wanted to replace council tax. I suggest—there was a report on local finance by the Select Committee in the previous Parliament—that we have local income tax as well, and make the local authorities responsible for a bigger percentage of the money they raise.

The Communities and Local Government Committee recently went to Sweden where people’s income tax demands include an amount for central Government, an amount for the county, and an amount for the municipality. The amount paid to the municipality is greater, because the services it provides cost more and are more important to local people. That is how Sweden operates. I know that the Political and Constitutional Reform Committee has looked at designating a certain percentage of income tax for local councils. That is a step forward, but why can councils not vary things? If councils want to vary services and local people want better services and to pay for them, why can there not be differences in different parts of the country? That is a challenge and a debate to be had. There is no one solution at this stage, but at least let us start to think radically about a way forward. We cannot simply go back to the idea that it will all come from central Government and council tax.

We also need to reform capital finances—for heaven’s sake, the cap on the housing revenue account is nonsense. Everyone who has looked at the issue can see that prudential borrowing rules apply to every other aspect of local government finance in the capital, apart from housing. Let local government be free to build the homes that people need, and let Treasury control move back from local government borrowing. The prudential rules exist and can be audited, and local authorities can be held to account.

Let us also hope for Government support for the LGA’s idea of a municipal bond agency, so we can return to a situation in which people can invest in their communities through bonds, with a good rate of return, so they can see where the money is going to improve services locally. There are lots of good ideas. We rightly focus on the impact of the cuts, but we should also look at how we deal with the situation in future.

The cuts the Government are inflicting on local government are unfair. There are not only cuts on local government, but on local services that people greatly value. Those cuts should not be that much greater than the cuts in the rest of government. The distribution of those reductions is unfair. At the same time, we must recognise the current situation and that we have a challenge for the future. How do we address it and make local government more financially independent? How can we give local government greater means to raise resources for their local services? If we can meet that challenge, it will be good not merely for local government and local councils, but for local communities, democracy and accountability. That is well worth debating.

--- Later in debate ---

[Brandon Lewis]

I will take an intervention in a little while, if I have time.

We heard a number of interventions during the speech by my hon. Friend the Member for Tiverton and Honiton. My hon. Friend the Member for High Peak (Andrew Bingham) mentioned what small councils could do. It is worth stressing—I am happy to put this on the record again—that there are small district councils across the country, and not just in rural areas, running budgets of roughly £10 million or even less. They must look at their situations very closely and consider whether their current format, with their own chief executives, management and silo services, is sustainable. They should consider partnering with other authorities, as around 40 authorities do already, and having shared chief executives and management.

The partnerships between High Peak borough council and Staffordshire Moorlands district council is a fantastic example. My hon. Friend the Member for Bury St Edmunds (Mr Ruffley) talked about Mid-Suffolk district council, and I must say that Suffolk, as a county generally, offers a really good exemplar of the work that can be done. Suffolk Coastal and Waveney district councils are coming together with a shared chief executive. Babergh and Mid-Suffolk district councils and St Edmundsbury borough council and Forest Heath district council are all showing how to come together to make real savings.

The chief executive of a council deal such as Staffordshire Moorlands and High Peak would explain that those kinds of savings can amount to 18% or 20%. When they are running a budget of around £10 million, that is a substantial saving. I argue that small local authorities should be doing that not only because of financial pressure, but because the money could be spent on front-line services, rather than on administration and management.

Several Members mentioned school bus services. I agree that councils should be working very hard to protect front-line services that are important to rural and urban communities. In my constituency of Great Yarmouth, the Labour-led county council has looked at cutting rural bus services, which would mean children having to walk up to 3 miles to get to school, and on major roads with no pathways. That is absolutely unacceptable. It should be looking at the plans that were in place under the previous Conservative administration in order to find the savings it needs and bring in the revenue it needs without slashing those important services. Councils should look at that carefully.

The hon. Member for Penistone and Stocksbridge (Angela Smith) carefully outlined the situation with regard to funding, but we must remember that in the past year councils increased their reserves to £19 billion, the highest level on record. It is important that we also look at options. This Government are not just talking about that; with community budgets we are delivering a transformation in the way services are provided across the public sector, which independent reports show could save this country around £20 billion. Across the country there are community budget pilots, of all political colours, doing some phenomenal work, and that has now been rolled out to a further nine areas.

My hon. Friend the Member for Newton Abbot (Anne Marie Morris) touched on some of the issues relating to education, transport and buses, which I have already outlined. The Chair of the Communities and Local Government Select Committee, the hon. Member for Sheffield South East (Mr Betts), raised some issues about funding and mentioned the 56 councils. I have touched on some of the things that they could be looking at. I am not entirely surprised, although I am still disappointed, that he seems to be making the case for more taxes on people who I think want the cost of living to go down. That is why it is important that we freeze council tax and do not encourage more taxes locally.

[Mr Betts]

The Minister just mentioned reserves. Does he not understand that it is not an issue of rural or urban, or Conservative or Labour? It is about councils looking at the black hole that is coming, as the forecasts show, and which the Chancellor has identified in the spending review, and making prudent decisions on how to spread the money available over a number of years in order to try to do their best to protect services. If Ministers just keep rubbishing that as councils holding on to reserves for their own sake, they do a disservice to hard-pressed local authorities.

[Brandon Lewis]

I am afraid that I entirely disagree. Having led a local council that, before my time, had seen council tax increases of 18% and 16%—they were regularly in the double figures—and in a country where council tax doubled under the Labour Government, I believe that hard-working people think that council tax should be kept low and that councils should be looking at how they spend their money, not just building up reserves and then pleading poverty. If they believe that they are short of money, they should use the reserves they have to invest for income in the future and make savings, as many good authorities are doing.

The hon. Member for Mid Dorset and North Poole (Annette Brooke), in a very strong speech, touched on the new homes bonus, as did a number of Members. It is an issue that we are looking at. There is a consultation at the moment and the Government will of course respond to it. The hon. Member for Easington (Grahame M. Morris) referred to fire authorities, but he should bear in mind that the response to the Knight review is coming. Fire authorities were protected in order to make some of the efficiencies that they should have been making but in too many cases were not.

My hon. Friend the Member for Penrith and The Border (Rory Stewart) outlined in his strong contribution—other Members also commented on this—how he thought the funding gap should be reduced. I say to my hon. Friend that the gap between rural and urban with regard to spending per head has reduced by 4%.

That leads me to an important point raised by my hon. Friend the Member for Beverley and Holderness (Mr Stuart) in his passionate speech. I thought I was doing well with his flattery and compliments, for which I am grateful. He was clearly being sincere until he mentioned the word “svelte”; I knew then that my ego was not being brushed in the way I hoped. My hon. Friend made a clear point about the analysis. While he was away after suffering an unfortunate injury, I met SPARSE and I would be happy to go through this again. We managed to clarify the difference between how it and the Government have calculated the figures. A rural area is different for the Government, because an area such as my county of Norfolk, which would usually be classed as rural, has within it urban areas such as Norwich, Great Yarmouth and King’s Lynn, and that gives us a slightly different calculation. I would be happy to go through the figures with my hon. Friend when we get to them in a few months’ time.