Funding for Local Authorities

Diana Johnson Excerpts

Thursday 10th October 2013 Commons Chamber

[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.