Local Government Finance

David Simmonds Excerpts

Wednesday 5th February 2025 Commons Chamber

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

Thank you very much, Madam Deputy Speaker. I draw the House’s attention to my entry in the Register of Members’ Financial Interests as an unpaid parliamentary vice-president of the Local Government Association.

It has been an excellent debate, and I applaud the many Members on both sides of the House who have made insightful contributions to the discussion. Not only have they brought up issues affecting their own constituency —as, for example, my hon. Friend the Member for Keighley and Ilkley (Robbie Moore) set out so powerfully in his speech—but Members such as my hon. Friend the Member for North Cotswolds (Sir Geoffrey Clifton-Brown), speaking in his capacity as Chair of the Public Accounts Committee, set out a number of really important points that will affect the detail of how this plays out at local level. I am glad that the Minister touched on those points in his introduction.

As the House knows, local government in the UK spends around £40 billion of taxpayers’ money and over 800 different services are delivered by the average local authority. As a consequence, this issue touches the lives of more constituents than almost any other area of government activity. The starting point that we have to recognise is the one that was made by the chairman of the County Councils Network, who said that from the perspective of local authorities, this was the worst settlement in years. It is clear from the Minister’s introduction that he is a Minister who knows his WOECAT from his BRB from his persnuffle, but the impact of that detail matters so much.

In particular, the most significant element is the imposition of employers’ national insurance contributions in the Budget. According to the estimates of the Local Government Association, local authorities face more than £1 billion in unfunded costs arising from that alone. Harlow council, for example, has set out that this settlement represents a 21% cut in its core funding, within which it will receive £198,000 of revenue support in this year only for over £1 million of additional direct costs from national insurance contributions. That cost will rise to £1.2 million next year, with—as currently projected—no funding provided at all.

The Institute for Government has analysed the Government’s Budget overall, and when it looks at those elements affecting local government, it says that the Budget is “heavily front-loaded”—there is additional funding this year—but that the current plans set out by the Chancellor imply that there will be cuts in every year for the remainder of the Parliament, which will make it very

“difficult for…local government…to improve”.

We need to recognise that although there will be winners and losers, this is a budget settlement for local government that contains an enormous number of challenges, and there remain a number of very significant questions, which I will come to in a moment.

I welcome the point made by a number of Members about the value that we place on our local councillors. I have spoken to the Minister, and I agree with the point raised by a number of Members about restoring the access of councillors in England to the local government pension scheme. We must demonstrate the value that we place on local leadership, and that will be even more significant in the context of extensive local government reform. I know that is something Ministers are considering, and that its cost is minimal in the context of the overall local government finance settlement. As many Members have pointed out, motiving local leadership is vital to getting this right. With the reduction in the number of councillors and local politicians, in a country whose population is projected to hit 72.5 million by 2032, we must ensure that that growing democratic deficit is addressed by engaged, effective local politicians with the ability to make decisions in their area.

Let us look at where the money is going, where it is coming from and how that is changed. As the Minister knows, around three-quarters of council funding is spent on social care, and since the fair access criteria that were introduced by the last Labour Government, that is no longer a matter of local decision making. It is largely a statutory duty, where clear rules are set out in guidance from central Government about how that money will be spent, and how each resident and each constituency can help and will be treated. As a consequence, the bulk of funding going into the system is being spent on what we might describe as the “must dos”, rather than the “nice to haves”, and the fulfilment of clearly defined statutory duties.

If we cast our minds back to the last local government report of this nature under the previous Labour Government, we see a much longer report than the one before the House this evening. That report sets out the relative needs formula, which was the methodology used for the distribution of funding for all manner of different areas of local government activity. In 2010, around 25% of local government resources came from council tax, 27% came from the formula grant, which was essentially a redistribution of business rates, and 48%—very nearly half—came from specific grants, of which around two-thirds was the education budget. One of the big changes that has taken place over that period is the growth in the independence of schools and the rise of academies, and therefore a much larger share of that funding no longer sits within the local authority budget but is paid by the Education and Skills Funding Agency direct to schools. While that funding is no longer part of the council’s budget, it is still being spent locally on the same services that it always was.

A lot of debate in the House on local government has been about devolution, and one of the most significant areas of devolution regards financial responsibility. If we reflect on those same formula elements today, 52% of council spending is derived from council tax, directly under local control, and 27% comes from a grown share of business rates pooling, with a focus on incentivising councils to deliver growth. A much lower 22% comes from grant funding, as the Government sought to give local authorities over that 14-year period a much greater degree of control over their own resources. When we reflect on what that formula also tells us, as a number of Members have said, the decision to scrap things such as the rural services delivery grant reflects a criticism of the priorities set out by the previous Government.

We must also reflect that when we look at the list of the lowest funded councils in 1997, in 2010, and today, we find broadly the same set of local authorities on that list. The consequence of that is clear: no Government can cut funding that the council did not have in the first place. While most Conservative, and particularly rural, authorities did not see any benefit, or no significant benefit in funding through the indices of multiple deprivation, for the most part, the Conservative Government for 14 years maintained a significant premium of funding to areas for things such as children on free school meals going into education and in ensuring that deprivation formulas continued to play a significant part in the distribution of social care resources. The rural services delivery grant was a small step towards recognising, in the distribution of local government funding, the additional costs that were faced by places that had never seen any benefit from any Government. Members from all parts of the House—particularly Labour Members newly elected to rural areas—have said how awful it is that their local authorities are challenged by costs such as potholes and maintaining rural roads. Wait until they find out who decided to take away the rural services delivery grant, which would have provided the resources to deal with that.

The biggest challenge that all local authorities face will be dealing in parallel with reorganisation and the tight financial environment. As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) said in the statement on devolution, it is clear that the Government—I respect the fact that they have been clear about this in their statements to the House—have made a decision in Whitehall about the form that they expect to see local government in England taking. It is also clear that they will ensure that that is implemented initially through local authorities coming forward as volunteers, and subsequently through a statutory invitation to ensure that they do.

I hope that the Minister will address a number of those points in summing up. The report is principally about the revenue support grant: local authorities do not yet know where they stand on the public health grant. They do not yet clearly know where they stand on schools funding. They do not yet clearly know the impact of Government announcements on the housing revenue account or the parking revenue account, all of which will have a significant impact. In particular, the statutory override on the dedicated schools grant for SEND remains uncertain and a significant budget pressure.

Let me finish where my hon. Friend the Member for Thirsk and Malton finished: if the Government can find £18 billion to cover the cost of the Chagos Islands deal, I am sure they can find the funds to make a better fist of it for our local authorities.

--- Later in debate ---

[Rushanara Ali]

Perhaps the hon. Gentleman will listen. The Minister tried to respond to his comments but he was not interested in the answers, so he will sit down and listen to my closing remarks. I want to respond to hon. Members across the House who have taken these issues very seriously.

This Government have already invested £3.7 billion in social care. We have recognised the need for investment in response to the rise in national insurance contributions —up by £515 million, as my hon. Friend the Minister pointed out. We have invested £1 billion in SEND and £600 million in the recovery fund. That is a snapshot of the investment that we are putting in. Local government and local services were starved of much-needed support under the last Government. That is what we are trying to correct.

[David Simmonds]

Will the Minister give way?

[Rushanara Ali]

The shadow Minister has had his chance to make his points. It is my turn to sum up, and I want to address the points that have been made.

--- Later in debate ---

[Rushanara Ali]

No.

We are very serious about working with colleagues both in Parliament and in local areas to tackle these very serious challenges, which local authorities need us to address after 14 years of under-investment.

[David Simmonds]

rose—

[Rushanara Ali]

I am concluding my speech. The shadow Minister has had his chance.

--- Later in debate ---

[Rushanara Ali]

An exemplar contribution. The hon. Gentleman is absolutely right about ensuring that local authorities receive expertise and support, which is why the local audit office is so important. I know my hon. Friend the Minister for Local Government and English Devolution will work with him and his Committee to ensure we get it right, so that local authorities get the right support to ensure their finances are carefully managed.

I thank hon. Members once again for their valuable contributions. As I hope has been clear throughout the course of the debate, the Government are under no illusion about the scale of the challenges before us. There is no silver bullet to solve them. After 14 years, the idea that within the space of seven months all the underlying issues can be resolved is for the birds. I hope hon. Members, including the shadow Minister, recognise that we have to take the issues seriously. Just turning up and scoring points will not do the job. We have to recognise that there are serious issues and challenges. Where we can work together, we must.

I am conscious that I did not give way to the shadow Minister. If he wants to work with us, I am very happy to give way.

[David Simmonds]

I am grateful to the Minister. I think most of us, certainly on the Conservative Benches—this was acknowledged with gentle humour by a number of colleagues—are determined to work together in a constructive way, because we recognise that this issue has a huge impact, but I have to ask the Minister a question. She referred to an “investment” of £538 million in respect of national insurance contributions. Does she really argue that it is an investment to raise taxes on one group of people to provide a grant to our local authorities to pay another government tax? Would it not surely be better to go for a lower tax, higher growth agenda, rather than seek to tax our way into prosperity, which does not have the best track record in economic history?

[Rushanara Ali]

Perhaps the shadow Minister did not hear the opening remarks of my hon. Friend the Minister for Local Government and English Devolution, or my remarks, about what the Government have already invested in local government—billions. Does he want me to go over it again? There is not much time, Madam Deputy Speaker, but I suggest that he goes back and listens to the speech and those announcements. He knows that, in a very challenging set of circumstances, we have invested an additional £5 billion in local government. I hope very much that we can work on areas in which we can agree, but where we cannot, let us agree to disagree.

As I have said, there is no silver bullet that will solve the difficulties that we have to address, many of which we have inherited. Today is the start, not the end, of the process of reform and renewal, but with this settlement we have begun the task of putting councils on a sounder financial footing, fixing the foundations, and strengthening the sector for the long term. This will give councils the certainty and stability that they need in order to plan, move from crisis management to prevention, and deliver the change that the country needs: higher growth, higher living standards, more jobs, more homes and more opportunities as we rebuild as part of our plan for change. We are putting more money into people’s pockets, and putting stability, investment and reform first to deliver national renewal. We are putting Government back in the service of working people. I commend this settlement to the House.

Question put and agreed to.

Resolved,

That the Local Government Finance Report (England) 2025–26 (HC 623), which was laid before this House on 3 February, be approved.

Resolved,

That the Referendums Relating to Council Tax Increases (Principles) (England) Report 2025–26 (HC 624), which was laid before this House on 3 February, be approved.—(Jim McMahon.)