Local Government Finance

David Simmonds Excerpts

Wednesday 7th February 2024 Commons Chamber

[David Simmonds (Ruislip, Northwood and Pinner) (Con)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. There is an old saying that we can tell the state of a civilisation by the condition of its public toilets. It is often one of the services that the wider public and voters associate with local government, alongside potholes. However, as has been well reflected in the debate, local government finance is a huge part of overall Government and public sector expenditure. The vast majority of it—around 75% of the average local authority’s budget—goes not on public toilets, libraries or potholes, but on the care of the most vulnerable people in our society. All of it is hugely influential on the quality of life of our constituents, because it affects everything from education to the built environment, and things such as parks and sports facilities, which are incredibly important in people’s day-to-day lives.

In that context, it is important to start by recognising the positive news in the statement: the recognition by Government that on the core statutory services around adult and children’s care, cost pressures are becoming unsustainable. That has been acknowledged with a significant injection of extra cash. There will be a huge debate about whether that money is sufficient to address the concerns, but it demonstrates that the Government recognise the impact that unsustainable cost pressures are having, and are addressing them. Of course, it continues to create pressure that legislation on the setting of council tax requires local authorities to consult with residents in the autumn, around October, before council tax is set by law the following February. It is quite late in the day for us to be factoring in the additional funding announcements, welcome as they are.

I reiterate the calls from both sides of the Chamber that the earlier we can get any of these announcements into the system, and the more they can be structured into a multi-annual financial settlement, the more efficient the use of those resources and the greater the benefit to our constituents will be. It is always immensely challenging to run around trying to get road contractors to mend some extra potholes at the tail end of the financial year, but if we know that extra money is coming down the tracks we can invest in such things as jet patchers, which have been used in both Hillingdon and Harrow for many years, as a means of proactively getting out there and dealing with pothole repairs before the condition of the roads deteriorates any further.

I will pick up on a couple of issues in a little more detail, some of which have been touched on and some of which I hope will be fresh to the Chamber. The first is the impact that deficits on the dedicated schools grant high-needs block has on the funding announcement that we are debating. For many years, not just before 1991 and the setting of the council tax bands but since the earliest inception of business rates, the funding of education has been based on the business rate take from a given education authority’s area. That carries through today in the form of the dedicated schools grant, and it is why we see such differential funding rates for education from local authority area to area. However, around half of local authorities now have significant deficits on the dedicated schools grant.

While the dedicated schools grant, and the education budget generally, sits with the Department for Education, for the purposes of local government law it has to be covered by the annual balance requirement that is covered when council tax is set by the given local authority each February. If there is a substantial deficit on that budget, which is pretty much entirely under the control of the Department for Education, then significant savings have to be made in the general fund, which today’s statement covers, to make up for it. That has been dealt with in recent years by an annual renewal of a disregard, which essentially says to the accountants and monitoring officers in local authorities, “You simply have to allow the DfE to carry this forward, and don’t allow it directly to impact on your council tax every year.” However, there is no absolute certainty about the long-term position with the impact of the dedicated schools grant.

While the efforts being made by local authorities, borrowing against their own revenue budgets to fund an expansion of capital investment to create more SEND school places—the subject of a Westminster Hall debate by my constituency neighbour, hon. Friend the Member for Uxbridge and South Ruislip (Steve Tuckwell) this afternoon—will begin to have an impact in bringing those costs down, it remains a significant financial risk to local authorities. It would be helpful to hear, from the Minister today if possible, but certainly from the Government before too long, that that will be addressed and there can be some certainty for local authorities on that long-term position, not least because of the impact it has on the balances held by local authorities around the country.

It was great to hear the hon. Member for Sheffield South East (Mr Betts) refer to public health, which remains a key responsibility of local authorities. The covid pandemic rather brought that into the light once again, and the capacity of local authority public health team test, track and trace services, which have been there for many years, was critical to the national response to covid. It also highlighted the fact that, as a country, we went into that pandemic with a population that was, on the whole, a bit less healthy than in many comparable countries. Continued investment in that public health function, to ensure that our children in particular are able to enjoy a better degree of general health in the future, will make us much more resilient as a country in the face of future such challenges.

Turning to the local government funding formula, it is important to recognise that, as all hon. Members reflect, one major challenge in its impact on our constituents is the enormous historical inequity in the way the formula operates. That has a number of different manifestations. Many Members have talked about rural versus urban and suburban impact. Having served, alongside several other hon. Members in this Chamber over the years, at the Local Government Association, that was a pretty much annual subject of lobbying to Ministers, and a number of studies were done on the rural/urban/suburban differential.

The reason that many of those studies did not see the light of day is that the conclusion was that there was not, in the end, much difference—that the challenges that arose from high degrees of density, particularly the consequences for the delivery of all kinds of public services, were pretty much in balance with the equivalent challenges that arose from a greater degree of geographical sparsity in rural areas. Those studies tended to look at the costs of a whole variety of public services.

What is also clear, however, is that the move to significant rises in council tax will raise significantly different additional amounts in different parts of the country. I represent a constituency in a relatively prosperous London suburb, covering two local authorities. However, even in London, with 33 local authorities, we see a differential. When the last calculation was done, a 2% rise in council tax would create, for the local authority that generated most of its money from council tax, which at the time was Richmond, an additional 1.8% increase in its revenue budget, or disposable money to spend. In comparison, the City of London, which was largely dependent on Government grants, would see an additional 0.02% increase in its disposable income as a consequence.

Across the country we see that effect magnified. The ability to raise money of a local authority with a large number of band A properties will be much less than that of a local authority with band G and H properties, such as the constituency I represent. While it will help, therefore, it will not be a long-term solution, and we need to find a way to address the differentials for the long term.

I want to express my strong support for Ministers in the Department and for our Prime Minister, who came in for a bit of criticism for saying he wanted to get to grips with the way the funding formula has historically divided up funds. I spent my time as a councillor during all but one year of the last Labour Government and then for most years of the coalition. Every year was challenging, but there was enormous frustration during those years of Labour government. Most additional funding was not placed, as we are debating today, within the core funding settlement; it came in the form of additional grants that were routed to local authorities based on needs that were not reflected in the statutory obligations of the local authority.

A local authority for a seaside town with lots of elderly people to whom it had a statutory obligation to deliver adult social care, or a local authority in an outer London suburb with many children with significant care needs to whom it had a statutory obligation, got no extra funding at all. However, cities in certain parts of the country—although there was perhaps genuine poverty and housing need that had to be address—often had more money than they could possibly spend.

Many local authorities would have spent every single one of those years having to make cuts to statutory services while being given additional grants for things that were less of a priority. It is enormously welcome that the Government are beginning to get to grips with that by saying that the way in which the money flows must first reflect the legal obligations that Parliament has placed on local authorities. If we in this House say that adult and children’s social care must be delivered to a certain standard and driven by certain costs, we must ensure that the money is flowing in that direction.

Let me gently push back on the couple of Members who mentioned equalities. I had the joy of being a peer reviewer for the equalities standard for local government during my time as a councillor. There has been criticism, or perhaps an implication, that councils are wasting money in that area. One reason that councils do things such as equalities impact assessments is to avoid expensive legal challenges of the kind that used to be extremely common, that cost taxpayers huge amounts, and that obstructed reform, particularly of social care services. If officials at the town hall are ensuring that contracts are tendered in a way that reflects the diverse needs of a community and means that they will not be tangled up in years of legal challenges based on the Human Rights Act 1998 or any other element of equality legislation, that increases the efficiency of service delivery by that local authority. We should be cautious about assuming that if it comes with an equalities badge, it must, in some sense, be a waste of money.

Funding reform will be enormously welcome across the country. Let me set out the key things on which I ask the Minister to reflect as he embarks on that process. First, the work that has already started, to ensure that local government funding reflects the cost drivers arising from legislation passed by this House, is critical. If we say, “This must happen and must be done by local government,” we must ensure that the resources are there for the delivery of that thing, otherwise we create an unsustainable and unbridgeable gap between our constituents’ expectations and the available funding.

As the bigger picture of reform is taken forward, I suggest that we look at the role that planning gain will play in how local authorities are funded. Despite economic development being an enormous priority for our Government and our country, most forms of development remain a net cost to local authorities. In Hillingdon, we certainly had that spelled out to us starkly in respect of Heathrow airport, the campaign for expansion and the national debate about whether that was an additional benefit to UK plc. However, it was extremely clear, especially because the business rates all went to central Government, that the expansion of Heathrow airport simply created significant additional cost to the local authority. A recent study estimated that each new citizen moving to a city represented an additional cost of £15,000 per annum to its public services, after all the benefits, including the tax that they pay, were accounted for.

As development proceeds, we must ensure that our constituents see a real benefit, so that local authorities, and Members of Parliament—instead of standing up in this House and saying, “We want more housing and more economic development,” before appearing on leaflets in the constituency opposing it all—can look their voters in the eye and say genuinely, “If we get this new factory, it will be disruptive, but the money from it will mean that we get a new bus service or an improved GP service.”

The Minister will be looking at a lot of detail, but I ask him to reflect in particular on the impact of funding temporary accommodation costs from local authorities’ general fund. The housing revenue account is ringfenced, and we know that that comprises both the rents that are paid by local authority tenants and several other funding streams. However, the fact that it is ringfenced and often significantly in profit has encouraged Governments in the past to look at it as, for example, a source of funding borrowing to invest in housing. The temporary accommodation challenge that we face—especially because of the large numbers of people arriving in the UK over fairly short periods of time, exacerbating some pre-existing challenges—is significant and acute. I urge the Minister to look at whether some additional flexibility around the housing revenue account could begin to relieve some of the pressures on the general fund referred to in the motion.

I finish my remarks by thanking the people who serve in all local authorities, in particular those who serve as councillors in my constituency and lead my two local authorities. The feedback that I receive from constituents, despite all the potential gloom and doom about local government, continues to be extremely positive and is often improving: people see that their streets are becoming cleaner and their environment is being cared for. That is incredibly important to them—often far more important than the issues we are debating in this House—and we owe those councillors a huge debt of thanks as fellow elected politicians.