Newcastle upon Tyne City Council

Graham Stuart Excerpts

Tuesday 8th January 2013 Commons Chamber

[Catherine McKinnell]

It is obviously for my hon. Friend to speak on behalf of the people of Liverpool, but I have no doubt that the cuts are impacting on all of the core cities and I will make the economic point about that later in my speech.

Baroness Eaton, who was until recently the Conservative chair of the Local Government Association, described the Secretary of State’s understanding of the effect of local government cuts as

“detached from the reality councils are dealing with”.

I could not agree more. Meanwhile, Sir Merrick Cockell has called the cuts “unsustainable” and the Tory leader of Kent says that his county “can’t cope” with further reductions and is “running on empty”.

When deliberating on what I would raise in this debate —unfortunately time is short and it has been difficult to cut down my speech—I decided to think about what the Minister would say in response. That is fairly predictable, so I will use this opportunity to respond now to what I believe he will say.

I am sure that the Minister will claim, like the Secretary of State before him, that the average reduction in council spending power across the country has been only 1.7% and, indeed, that Newcastle has fared pretty well, because its spending power has fallen by only 1.5% in cash terms as a result of the recent funding settlement. I say to him that that is disingenuous at best and seriously misleading at worst.

The headline figure, which applies to only the first year of the settlement—2013-14—has in fact already been shown to be inaccurate and substantially understated, with the Department for Communities and Local Government double-counting the council tax support grant and council tax income for both 2012-13 and 2013-14. Other errors include the cut in the early intervention grant being significantly understated. Newcastle city council believes a more realistic estimate of the cut to be 3.2%, which is more than double the published figure, or a 4.9% cut in grant funding. I therefore ask the Minister to make a commitment this evening to ensure that statements made about the level of spending power cuts are formally corrected.

The 1.7% headline figure also completely masks the far greater cuts that will take place in year 2 of the settlement. Newcastle faces a 6.8% drop in spending power by 2014-15, compared with a 5.5% average fall in England and only 1.6% in Surrey.

The Minister will no doubt try to persuade me that the cuts being experienced by Newcastle are fair and not disproportionate when compared with other parts of the country, but the facts show clearly that over the next three years the cuts will be much higher in northern areas and a few inner-London boroughs. According to DCLG’s own figures, the cut in Newcastle’s spending power between 2012-13 and 2014-15 will be £218 per person, compared with a national average of £134 and a cut of only £27 per head in Wokingham.

I refer to Wokingham because, in returning to my predictions, I assume that the Minister intends to make the time-honoured comparison between Newcastle’s situation and that of the Berkshire town. He will inform us that Newcastle still has a spending power per household that is more than £700 greater than that in Wokingham. Nobody doubts that that is the case and let me be clear: I have nothing against Wokingham. I use that example because it is the one that Ministers always bring up whenever challenged on their approach to spending cuts.

I thought it might be helpful to clarify for the Minister precisely why Newcastle receives a higher grant than Wokingham—it is because our needs are higher. Newcastle has four times more children in care, greater homelessness needs, higher council tax support needs and fewer people who are able to self-fund their own elderly care. Compared with Wokingham, Newcastle receives four times as much funding for the statutory concessionary fares scheme, yet it faces costs that are nine times higher due to the sheer number of poorer pensioners who use bus services.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

Will the hon. Lady give way?

[Catherine McKinnell]

I am sorry, but I do not have much time to complete my speech.

Where local government finance becomes completely inexplicable is in the fact that Wokingham receives £124 more funding per household than Newcastle for “damping”, or protection against excessive loss of grant. Wokingham will receive an increase next year in resources to protect against excessive grant cuts that is three times greater than that in Newcastle. A system that was originally intended to protect councils from high levels of grant reductions is instead providing more protection to some of the wealthiest councils which have faced the smallest cuts in their spending power.

I suspect that the Minister will also mention the £16 billion in reserves, on which the Secretary of State believes councils are blithely sitting. However, he knows that the £16 billion figure across the country includes £12 billion of reserves that are earmarked for specific purposes, such as funding capital investment commitments in future years, meeting insurance claims, meeting equal pay or redundancy costs, and meeting the cost of flood damage that cannot be claimed under the Bellwin scheme. The latter point is of particular relevance to Newcastle, given the devastating flooding in parts of the city last year.

Indeed, reserves were referred to in the Secretary of State’s somewhat patronising document on 50 “sensible savings” that was published last month. I point out to the Minister that Newcastle city council has already made efficiencies of £100 million over the past three years and has undertaken almost all of the Department’s savings proposals.

In conclusion, Newcastle city council believes that it is in an impossibly difficult situation. Newcastle and other members of the Core Cities Group are having to write to the Secretary of State to inform him that

“there will be no money for anything but social care and refuse collection later in this decade”

unless the current funding plans are changed. The Secretary of State and his Ministers appear complacent, dismissive and even indifferent to the concerns that are being raised.

All I am asking is that they treat Newcastle city council and my constituents with the respect that they deserve and act urgently on their concerns.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

I first join the right hon. Member for Newcastle upon Tyne East (Mr Brown) in congratulating the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) on securing the debate and giving us the opportunity to go through some of the principles behind the Government’s work on the local government finance settlement. As the hon. Lady will know, there is currently a consultation process. This week—I think on Thursday—I will be meeting representatives from the councils of Newcastle to go through specific issues, and I will take on board their comments.

The proposals that my right hon. Friend the Secretary of State set out on 19 December are out for consultation. I want to be clear that we believe that it is vital that councils continue to play their part in tackling the inherited budget deficit by making sensible savings and delivering value for money for the taxpayer. The settlement recognises the responsibility of local government to find sensible savings and make better use of its resources, and it marks a new type of settlement for local government based on self-determination and financial independence. It is a move from the begging bowl to pride in locality, and it is the start of the biggest shake-up of local government finance in a generation.

As the Secretary of State said, we are shifting power from Whitehall directly to the town hall, and we are providing a direct financial incentive for councils to promote growth and jobs in their area. From April, authorities will directly retain nearly £11 billion of business rates instead of returning it to the Treasury, and they will be able to keep the growth on that share of business rates. Striving councils will benefit by doing the right thing by their communities. If they bring in jobs and businesses, they will be rewarded. That could be particularly opportune in the context of the hon. Lady’s comments about the investment in culture that she feels the council should maintain. I will come back to that in a moment, but I hope she wins that debate with the council.

Research suggests that allowing councils to keep a share of the business rates could generate an additional £10 billion for the national economy by 2020. Our reforms will enable about 70% of local authority income to be raised locally, compared with a little more than half under the current formula grant system. That is a giant step forward for localism.

The start-up funding assessment, which gives each council a share of the funding, will mean £26 billion being shared between councils across the country, with the smallest reductions being for the councils that are most reliant on Government funding. Recent analysis by the House of Commons Library states:

“For each of the expenditure/funding measures the more deprived areas generally receive higher per capita allocations than less deprived areas”

and percentage reductions are

“generally smaller for the most deprived and larger for the less deprived areas.”

It goes on to say that:

“The group of authorities more dependent on formula grant to finance their budget—generally the more deprived areas—is set the highest floor level, representing the smallest reduction.”

We have worked closely with local government in developing the rates retention scheme and listened to what councils have told us during the extensive consultation process last year. For example, we have reduced the amounts we are setting aside for the new homes bonus and academies funding, which in total means an additional £1.9 billion for local authorities up front in 2013-14.

We have put in place a safety-net arrangement to provide protection for councils that might be affected by the closure of a large local employer. We have set the safety net at the most generous level in the range consulted on, meaning that councils will be guaranteed 92.5% of their original baseline funding under the scheme. Local authorities told us that they wanted a stronger growth incentive and we were happy to respond. We have made the scheme more generous, ensuring that at least 25p in every pound of business rate growth will be retained locally. The settlement leaves councils with considerable spending power.

[Mr Graham Stuart]

We have heard an impassioned case on behalf of Newcastle but the settlement inherited from the previous Government was not only a toxic debt but a situation in which funding for local government is 50% higher in urban than rural areas, despite the fact that delivering so many services in rural areas is more expensive. The real injustice is the historic underfunding of rural areas and the danger that that could be held in place all the way to 2020. It is not so much about Newcastle, although the challenges are everywhere, but we are seeing real injustice in rural areas.

[Brandon Lewis]

I have already met a number of councils that have made that case about rural areas. The detrimental impact of damping on some of those areas has been made clear to us in the consultation so far and we are very aware of the issue. My hon. Friend makes a strong point with great passion.

A small number of authorities will require larger savings to be made, but our proposals indicate that no council will face a loss of more than 8.8% in its spending power thanks to a new efficiency support grant. I will declare an interest and return in a moment to the figures mentioned by the hon. Lady because authorities such as mine in Great Yarmouth are suffering thanks to the problems inherited from the previous Labour Government’s funding structure. As the name implies, councils must improve services to qualify for the efficiency support grant. It is unfair to expect, as currently happens, the rest of local government to subsidise other councils’ failure to embrace modernity or move forward to a more efficient delivery of services. The settlement is not about what councils can take but about helping them take the most from what they can make.

Predictably, the doom mongers have been consulting their Mayan calendars and issuing dire warnings about the end of the world as we know it and a billion pound black hole in local budgets. Concerns that the poorest councils or those in the north will suffer disproportionately are well wide of the mark, as made clear in the report by the House of Commons that I cited a moment ago. In fact, the spending power for places in the north compares well—in fact, favourably—with those in the south.