Local Government Finance

Debate between Clive Betts and Paul Farrelly

Wednesday 12th February 2014 Commons Chamber

[Mr Betts]

I am sorry, but if the hon. Gentleman wants me to invent a grant settlement in the course of a six-minute speech, I am not going to oblige him.

When the Minister appeared before the Select Committee on Communities and Local Government, he admitted a fundamental change of Government policy, away from a needs-based system. The only needs taken into account are those reflected in the baseline of business rates, which started with the new arrangement in 2013-14. The new term—the settlement funding agreement—is really composed of two parts: the business rate base and the revenue support grant. As the business rate base is held constant or increases with inflation each year, the totality of cuts that the Government make falls on the revenue support grant element of the settlement funding agreement. Within the revenue support grant is something called the council tax resource equalisation adjustment. That has been cut by 25% this year, yet it is the mechanism by which extra resources are given to the poorest areas with the most deprivation. Those areas have had the biggest cuts, with resources transferred away from them. That is how the mechanism works in practice.

We can add to that the new homes bonus, which of course is not a bonus from Government, but is top-sliced from other Government funding—on the basis, therefore, of the grant that authorities already have—and then transferred to authorities according to the homes they are building. The Minister might say that that is an incentive to build homes—that is not what the Housing Minister said last time he was asked—but in the end, that money comes from a top-slice of grant, which means that those authorities with the greatest need and the greatest amount of grant pay the most into the system in the first place, and most of them lose out in the totality of the process.

Reference has already been made to my authority, Sheffield. The Minister likes to make comparisons with other areas that have not had as much grant in the past, saying that the Government are only doing a bit of evening up. Wokingham does not have the same needs as Sheffield, but in 2015-16, if we exclude the ring-fenced public health and better care fund grants that can be spent only on what they are allocated for, the spending power of Sheffield will be the same as that of Wokingham. That is impossible to justify according to anybody’s definition of fairness and reasonableness. Leeds already has less spending power and Newcastle will have less in two years. That is simply unfair. Does anyone on the Government Benches want to justify the idea that Wokingham’s spending power after 2015-16 should be higher than Sheffield’s? That is the system that Ministers are creating.

As the Minister knows, I am not against bringing some incentives into the local government finance system. I understand the desire for some localisation of business rates. I am in favour in the longer term of councils having the chance to raise more money at a local level rather than being dependent on Government, as an important element of localism involves freeing councils up to raise funds as well as giving them more powers.

[Paul Farrelly]

Will my hon. Friend give way?

[Mr Betts]

I said that I would take only one intervention, so my hon. Friend will have to excuse me. Other Members want to get in.

The system is fundamentally broken and I support the proposals made by the LGA in its “Rewiring public services” document. Let us give local authorities a budget for a whole Parliament so that they can plan ahead and let us consider involving the LGA in the process of distributing grant. I want to go further than that. I want a fundamental review of local government finance based on three principles. First, we should give more powers and responsibilities to local authorities, building on community budgets and city deals and going further than they do. Secondly, let us consider giving councils more fiscal autonomy, as the Select Committee is in the context of fiscal devolution to cities. We can then see whether we can reach some agreement to enable councils to raise more of their own resources. Finally and fundamentally, when the Government distribute money to councils they must do it in a fair way that reflects needs and deprivation. That is the element that the Government have forgotten in this settlement.

Communities and Local Government (CSR)

Debate between Clive Betts and Paul Farrelly

Thursday 13th January 2011 Westminster Hall

[Mr Betts]

That is still a big figure. It might be helpful to take this a stage further. Perhaps we could have at some point a note from Ministers to identify precisely where the difference between the 33% and the 68% actually goes in being passed down, because local authorities have not been claiming that they are seeing the benefit of an extra 35% in their budgets.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Before my hon. Friend gets to the substance of his remarks, would he agree that cuts in themselves are one issue, but that there is a separate issue about fairness in how they are applied? It seems from the headline figures that areas in the most need are suffering disproportionately from the cuts, while areas that one might refer to as leafy boroughs and counties are getting away with small cuts.

[Mr Betts]

I agree with that. I believe there are statistics to prove it, although other Members might come to a different conclusion when looking at the same statistics. We had a discussion with Ministers about that in our evidence session. I shall come on to that specific point, which is an important one.

Moving on from the spending for the Department at the centre to local government budgets, there will be a 28% reduction in Government grant over the four-year period. I believe that that figure is agreed; I do not think that anyone denies it. Why is local government taking a hit that is much larger than the average reduction in Government spending as a whole? There is a slight feeling that it is because it is easier to give the problem to someone else to deal with rather than dealing with it oneself. Pass it on to local government: it will deal with the difficult job and someone else might be blamed.

--- Later in debate ---

[Mr Betts]

I do not agree. We can always have discussions and disagreements about the extent to which grant allocations are fair, and I do not think there has ever been a grant allocation about which some Member has not stood up in the Chamber and complained, saying that their area gets a raw deal. That will always be the case, no matter where we get to. What tended to happen during the spending settlements of the Labour Government was that it was Conservative Members from the leafy shires who tended to get up and complain that they were getting a raw deal and that Labour was doing too much to help deprived areas. That was the general theme of discussions. I think that funds such as the working neighbourhoods fund were, in the end, both reasonably targeted to help some areas of deprivation and reasonably effective. I accept that the Government have decided to abolish the fund and to incorporate it into the revenue support grant.

Fundamentally, this is a matter of principle: as long as a fair settlement can be obtained through the RSG, I am not against the initiative. Over the past few years, there has been a move—under the previous Government and now under this one—to reduce, and hopefully eventually to abolish, ring-fencing and I am generally supportive of that as a principle. With the proviso that the allocation is fair, it should be up to local councils, once the allocation is given to them, to determine how to spend the money in their areas. There will be certain statutory requirements, but essentially, as a move away from ring-fencing and towards a more open method of allocation, I am supportive of this.

[Paul Farrelly]

I do not wish to campaign for cuts for anyone. My hon. Friend mentioned Dorset, and I shall read out some more names: Windsor, Maidenhead, Poole, West Sussex, Wokingham, Richmond upon Thames and Buckinghamshire. They are all in line for cuts of less than 1%, yet some inner-city areas are in line for the maximum 8.9% cut. Does my hon. Friend not agree that the general public will see that as profoundly unfair?

[Mr Betts]

The certainty is that people in Sheffield will think that that is profoundly unfair. I cannot resist making a party political point here: they will tend to wonder why a party controlled by the junior member of the coalition has not fought harder for the resources of northern cities such as Sheffield. I was perhaps tempting a response, but I am not going to get one. I am sure that issue will stay around.

I return to the point that one of the problems that the Government have in trying to make the settlement fairer than it is—I do not believe that it is fair—is that the speed of the cuts and their front-loading makes it that much harder to make any sense out of them. The element of transitional funding that would have been needed to mitigate that unfairness would have been a lot bigger than the £85 million that was finally agreed with the Treasury. That is one of the fundamental problems of the front-loading of the cuts and their scale.

I shall make another party political point—they are difficult to resist—but we must put the issue in context. The Minister may use this against me and say that local government has had a lot of money over the years, and that rowing back should not be too difficult. But the increase in total grants, including police and schools grants, and excluding business rates, that central Government provided to local councils from 1997 to 2010-11 was 80% in real terms, which is a very big increase. I return to the point that local government was asked to find 2% efficiency savings year on year, and it has achieved that. Local government as a whole is now a much more efficient organisation than 13 years ago.

A fundamental point about which the Minister may want to say something and on which the Committee challenged Ministers is the amount of business rates and the return of business rates to local authorities, and the fact that by 2012-13—the Secretary of State fundamentally confirmed this—the amount going to local authorities will be less than the business rates coming to central Government. There is a legal requirement on the Government to return all collected business rates to local councils. That will happen this year, but clearly it will not happen in future if the figures—they are notional at this stage—are confirmed.

The Secretary of State said that there were likely to be changes before 2013. There is a review of local government finance, and I understand that the Government’s intention is that business rates collected in an area should be retained there. How will there be an element of redistribution in grant to areas that are deprived and do not have a large business rate base if the total amount of money that central Government give to local councils is no more than the business rates collected, but the business rates will remain with local authorities? How can we achieve any element of redistribution to reflect differences in needs and resources if that is the Government’s intention? This is a really big issue, which Ministers will have to address at some stage.

I do not demur from the Government’s objective to relocalise business rates. I would like local authorities to be given the power to set the business rate. I do not believe that that is the Government’s intention, but it has been my long-term view. At a time when total Government money for local authorities is shrinking rapidly, if business rates are all they have left to give back, but there is no money because it will stay with the local authority that collects it, where is the element of redistribution of Government funding? The cavalry is behind the Minister, and I hope that he will be able to give us an answer.

I do not know whether the Minister will defend this, but can anyone seriously say that there will be no need for cuts in front-line local government services? I am sure that all hon. Members here have been talking to their local authorities, but I do not know anyone who has been assured by their council leader that there is no need for cuts in front-line services. This is not a party political point. All parties in the LGA will say the same. I accept that there has been an extra £1 billion for social services provision, but we all know that there are democratic pressures, particularly if we are trying to keep people out of hospital with aids, adaptations and care packages. That may not even take care of the demographic pressures.

The Secretary of State has said that the Supporting People programme need not be cut, but the next day Westminster council announced a £1 million reduction in its programme. We were told that there was no need for other cuts in front-line services, and that, if local authorities shared their chief executives and a few back-room functions and HR and planning departments merged, that would be sufficient to provide savings in all authorities. That is not true, is it? No one in the Chamber believes that sharing chief executives, HR departments and planning departments will mean no need for cuts in front-line services.

--- Later in debate ---

[Mr Betts]

I have given the overall figures, and I accept that some areas have done slightly better than others, but all authorities throughout the country had real-terms increases under the Labour Government. I challenge anyone to come back with an authority that did not have a real-terms increase in its spending. Generally, I support that, and I will not defend everything that the Labour Government did. Ring-fencing should be reduced, and I did not agree with separation of the schools grant. The Government have not been willing to challenge that, or give school grant funding back to local councils. If we believe in the freedom for people to spend and choose priorities at local level, perhaps that should have been done. Equally, I am not terribly happy about the free schools policy. It could take money out of local authorities and separate it from the system.

I support allowing local authorities more control over general Government spending in their area—the “total place” approach. I am a little disappointed in the Committee budgets; they are narrowly focused and down to 16 authorities, and that point was made in the Communities and Local Government Committee. However, I welcome the comments made by the Minister of State, when he said that the Government would listen to proposals from local councils if they came forward with wider or more innovative ideas about how Government spending could be better dealt with, so that councils could take the lead as accountable democratic bodies. That was a helpful comment, and I hope that we will see good examples of councils coming forward, and that Ministers will respond positively.

Finally, I would like to look at housing. I welcome the Government’s assertion that they will carry forward reforms to the housing revenue account. That places powers and responsibilities at local level, which is a helpful and welcome move. Local authorities will be disappointed—as am I—that they will not be allowed to keep all the receipts from any right-to-buy schemes, as they could under the previous proposal. I am concerned that the Government have the powers to reopen that settlement at any time. However, the Housing Minister has said that such a move would take place only in certain circumstances, and there is no general presumption that the Government would open the settlement without a reason.

I am concerned that the Government want to impose greater controls on local authorities’ ability to borrow for housing purposes—that goes against the idea of localism. Are not the prudential rules sufficient? Why do further controls need to be brought in as part of the reform? That does not seem to run with the grain of localism promoted by the Government.

[Paul Farrelly]

My hon. Friend raises the issue of housing. Does he agree that in order to tide themselves over the transition, many councils will be forced to dip into their reserves? That will clearly have an impact on future income generation. In Newcastle-under-Lyme in 2006, after transferring the housing stock, the Labour party left reserves of over £40 million. Under the Liberal Democrat and Conservative local government coalition, those reserves now stand at £24 million. At that rate of spend, it looks as if the reserves will run out by 2012. There has been no satisfactory explanation of how that situation was reached, or of whether council tax payers have gained value for money. Even though the council has been prudent in dealing with its housing stock, it could face having no reserves to dip into in order to tide it through a transition when the cuts are made.

[John Robertson (in the Chair)]

Order. Interventions should be kept a bit shorter than that.

Higher Education

Debate between Clive Betts and Paul Farrelly

Wednesday 3rd November 2010 Westminster Hall

[Paul Farrelly]

My hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) and I were veterans of the bloody battles that were fought in the Labour party over a market in higher education. The Conservative party and the Liberal Democrats agreed with us. The key achievement all those years ago was to stop the variability, which would have led to people from poorer backgrounds choosing cheaper universities.

While I am on my feet, I would like to make another point—

[Mr Clive Betts (in the Chair)]

Order. Interventions are supposed to be brief.

[Paul Farrelly]

This will be very brief, Mr Betts. The price paid for a degree sends a market signal to employers that the higher the price, the more a degree is worth. Therefore, more universities will charge higher fees simply because of the signals that that will send to employers. There will be many effects that have not been researched.