Communities and Local Government (CSR)

James Morris Excerpts

Thursday 13th January 2011 Westminster Hall

[Mr Jackson]

I am mindful of the fact that the hon. Gentleman has great expertise as a member of the shadow Treasury team. That is true not least of local government issues, because he and I sit on the board of the New Local Government Network. However, to pick up on the exchanges at Prime Minister’s questions yesterday, the former Government’s lack of effort and application speaks volumes about how imperative they saw the need to deal with that issue.

[James Morris (Halesowen and Rowley Regis) (Con)]

Is not my hon. Friend’s real point that although we hear a lot from the Labour party about the unexpected depth of cuts, preparations have been going on in local government for at least two years in the expectation that fundamental change would come along the line, irrespective of the party that was in government?

[Mr Jackson]

Absolutely. Credit where it is due; authorities of all political colours were mindful of the fact that, whichever party was elected, there would be a reduction in the revenue stream because of events in the world economy and the financial collapse. We should also mention the three pillars of the previous Labour Government’s economic policy. One was house building, which, as we have seen, did not work out too well. Another was unlimited public expenditure without proper reform. The third was financial services. I am afraid that all three pillars crumbled, and we are now having to pick up the bricks and mortar left by the parlous economic mismanagement of the elusive right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

That is the situation that we face. Let us remember that we are now paying £120 million a day in debt interest. In September last year, we were borrowing £15.6 billion a month. During the same month, interest payments on borrowing rose to £2.3 billion, up 150% on the same period in the previous year. Indeed, at the present rate of borrowing, had the Government not taken the decisions that they did, Government debt as a percentage of gross domestic product would peak in 2014 at 70.3%. We would be in the Portugal, Greece, Iceland and Ireland ballpark. For the Opposition to say that the Government should not have taken the decisions they took in the emergency Budget and comprehensive spending review is extremely irresponsible.

To move on to the issues about local government, the CSR is an opportunity for local government to scrutinise spending, make financial savings and redesign the way it provides services. It is also a challenge for local authorities to consider not only the costs of services but their value to communities. The CSR is pushing councils in the direction of being more innovative and involving the private sector, the voluntary sector and business sectors—I shall talk about some practical examples of the big society a little later—in a dynamic and intelligent use of resources. Removing the ring-fencing of grants, and the aggregation of grant funding from 90 income streams to 10 is exactly the right way to do things. I shall talk later about some of the additional funding issues that will give sustenance to local government in looking to the future, when the economy begins to grow and we have reduced public sector debt, such as the regional growth fund, the new homes bonus and, of course, early intervention grant. All those are extremely important.

As the Minister said, we are facing a net reduction of 26% in real terms between now and 2015, but the likely reduction estimated by the Office for Budget Responsibility is 14%. Of course that is speculative because we do not know the level of the income streams, and how each council will innovate to maximise income and assets. The Localism Bill contains good news for councils about their ability to exert more control over assets and share community assets with local people. My local authority is involving the private sector. Peterborough’s core front-line services, such as street cleaning, recycling, grounds maintenance and household waste, will be handled by a preferred bidder, Enterprise Managed Services Ltd. That is an example of a local authority that is innovating, and that has in recent years been thinking hard, with a business transformation team, to prepare for less than benign financial circumstances.

I was an Opposition Front-Bench spokesman on Communities and Local Government, and I want to think about areas that could have been examined, but were not. Fire control was an utter shambles. The predecessor of the hon. Member for Sheffield South East as Chair of the Select Committee, the sometimes fearsome Dr Starkey, was pretty straightforward and robust in her analysis. It was a financial, management and political disaster on many levels. It was bad. Now, because the Government have bravely picked up the baton of dealing with that issue, local authorities are being forced to think in innovative ways. They were doing that before, anyway. I visited Wiltshire and Swindon fire authority, in the constituency of my hon. Friend the Member for North Swindon (Justin Tomlinson), 18 months ago. The authority was already working with Vosper Thornycroft and with Avon and Gloucestershire on such things as premises, training and vehicle maintenance. The CSR will, I believe, be a catalytic change, so that fire authorities can do that. It will spread throughout payroll, human resources, senior management training and that kind of thing, and we will all agree with that.

One of my responsibilities in opposition was to think about the Thames Gateway. If ever there was an alphabet soup of shambolic mismanagement, it was that—100 separate bodies receiving grant funding, and about 120 statutory consultees. It was the Schleswig-Holstein question of local government. Anyone who understood the Thames Gateway was either mad or dead. I was neither, and did not understand it. That is now being subsumed into mainstream funding.

I want to talk about tax increment financing. One of my criticisms of the Government is that although they talk about it, they are not as yet persuading their Treasury colleagues to buy into the concept of supporting it practically. For want of a better expression, invest to save: with a little bit here there will, further along the line, be a lot. That will be a catalyst for building local economic regeneration and renaissance. I am still not convinced that the Treasury is fully committed to that, in the same way it was, incidentally, to other initiatives of the Labour Government in the previous Parliament.

I have already talked about ring-fencing and the general need for fiscal consolidation. I believe that the issue of targets and ring-fencing gives an important message to local government that we believe in localism. The power of general competence is an enormously important message to local government about civic renaissance, civic pride and putting local people in the driving seat. I am mindful of the fact that the Labour Government promised that in 1997. For some reason—I do not know why—it was not delivered. I think we can all agree that trusting local authorities, which is what the enactment of the power of local competence will achieve, will give councils of all parties that strong and powerful message. I suspect that in the next two or three years there may be a few more councils of the party of the hon. Member for Sheffield South East than of mine—but no names, no pack drill.

Of course the Bill also contains a duty to co-operate on infrastructure. That is important for a facilitation of strategic partnerships with primary care trusts and other larger and smaller local authorities. There are local authorities in west London sharing chief executives, and some smaller local authorities—South Holland, and one in Leicestershire, but I forget which—are also doing so, with a significant revenue effect.

--- Later in debate ---

[James Morris (Halesowen and Rowley Regis) (Con)]

It is a pleasure to speak before you for the first time, Mr Robertson. As a member of the Select Committee on Communities and Local Government, I welcome the opportunity to speak in this important debate. In the spirit in which the hon. Member for Sheffield South East (Mr Betts) started the debate, I will reflect on some of the important realities of the settlement for local government.

As other hon. Members have said, this is clearly a challenging time for local government. I represent a seat in the metropolitan west midlands that straddles the Dudley and Sandwell metropolitan boroughs, and I know that both those local authorities are having to make difficult decisions about their budgets and priorities. There is no way around that. However, as other hon. Members have also said, the environment might be challenging but it is not unexpectedly so. Even if a Labour Government had been elected, significant cuts in local government expenditure would have had to be made. That is a point of context that must be made in order to inject some reality into the implications of the comprehensive spending review and its impact on the DCLG and local government. The spending review has presented the Department with a difficult series of choices; there is no way around that. The spending review and some of the evidence that we in the Committee have gathered raise interesting questions and present opportunities for local government.

Over the past 20 years, there has been an obsession with top-down performance management in local government. We must now move forward into an age of innovation and collaboration. One perhaps unintended consequence of the CSR is that it has focused attention on the funding relationship between central and local government, which we must examine rigorously, as it is clearly important.

The scale of the fiscal consolidation that the Government are undertaking and its impact on DCLG and local government has produced some welcome and important initiatives. Other hon. Members have discussed the removal of ring-fencing, which is a significant change to the financing of local government. The previous Labour Administration can be considered as a game of two halves. The first half involved a Prescottian vision of regionalisation and central control. The second involved an acknowledgment—other hon. Members have mentioned this; it is not a time to be particularly partisan—that that was the wrong approach and that we needed to move toward more flexibility in grant funding. Now we need to move forward to the next stage in that flexibility. It is not a trivial but a major change in the relationship between central and local government and in funding.

One consequence of the CSR is that a fundamental review has been necessary of the Department’s costs. A 33% reduction in DCLG administrative costs has been announced, which reflects the changing balance of priorities. If we are moving toward a more localist future, DCLG must examine its central costs to see where administrative overheads and costs can be transferred out to the front line. That is an important recognition of the changing balance between central and local government.

As the hon. Member for Sheffield South East said, it is useful, practical and a positive move forward to view local authority funding in terms of the totality of local authority spending power rather than focusing merely on the totality of the formula grant. That way, we will get a true picture, especially considering some of the new grants coming forward into local government, such as in public health and adult social care. At least we will begin to get a sensible picture and a recognition that considering such spending power is a much more rigorous and important way to examine the total funding of local authorities.

Other Members have discussed funding for Supporting People. That funding has been relatively protected within the CSR. It has also been devolved. Again, that is part of a radical change. Central Government are giving local authorities much more discretion to understand the nature of their local communities and make decisions accordingly, which is to be welcomed.

One thing that has emerged from the Committee’s deliberations—I stress this to the Minister; I have raised this point before on the Floor of the House—is that everybody who has observed local government, including me in my previous role as chief executive of Localis, the local government think-tank, would agree that the grant distribution process for local government is opaque and fundamentally flawed. Discrepancies arise not just between metropolitan boroughs, counties and shires but between metropolitan boroughs themselves. Nobody understands how it works. There are always disputes and special pleading. I welcome the efforts made to ensure that fairness is built into the settlement through banding and transitional funding, but however much we try to mitigate it, it does not change the fact that the process of grant allocation needs fundamental reform. We need a more independent and transparent process, and I hope that will emerge from the Government’s review of local government resources and finance. It is fundamental to the future of local government.

The financial crisis and the tough decisions taken in the CSR create an opportunity. Crises are often catalysts for change in systems, whether biological, evolutionary or political and economic. That is no less true for local government today. The current pressure on local government, which we all acknowledge, is providing a catalyst for change. Across the political spectrum, local authorities the length and breadth of the country are taking seriously the challenge of a new environment in which innovation, particularly financial innovation, is central.

[Alison Seabeck]

The hon. Gentleman is making a thoughtful and well-informed speech. However, he mentioned innovation. Does he not share the concerns of Baroness Eaton? She said today:

“Local government will have to make cuts this year of around £2 billion more than we originally anticipated. This stifles the opportunities for innovation”.

[James Morris]

I do not agree. Baroness Eaton is obviously doing her job on behalf of the Local Government Association, and she is doing it well, but I know from my experience as a business entrepreneur that having one’s feet against the fire is a profound stimulus for innovation and transformative change.

The hon. Member for Sheffield South East said rather dismissively that a few local authorities getting together to share back-office services would not get us far. I agree that that will not plug the whole gap in certain contexts, but we must take the idea of shared services seriously. In my constituency, we are beginning to see partnership working across the political spectrum really deliver efficiencies and change, for example through new commissioning structures in local government. That must be the future, where local government does not take the role of the service delivery arm, but instead takes on more of a commissioning role. We need to look at new funding arrangements.

[Mr Betts]

The hon. Gentleman described my earlier comment as dismissive, but that was not my intention. I welcome savings that can genuinely come from sharing back-office services or chief executives where appropriate, but it might not be appropriate in all circumstances. Indeed, the same is true of sharing services not only between local authorities, but between local authorities and other public sector bodies. My point was that I do not believe that could fill a 9% gap in the spending power of an authority, which is also the point that the LGA is trying to make. The Minister said that no cuts in front-line services were necessary because all the savings could be found by sharing services; I was disputing that.

[James Morris]

I do not want to get into a debate on the definition of a front-line service, but I take the hon. Gentleman’s point. Once we have gone through the period of retrenchment that is necessary to get the country back on a stable footing, the essential challenge in local government will be to maximise the potential for collaboration, efficiency and shared services. That could be through innovative relationships not only within local government, but importantly, across the whole spectrum of local public services. I urge the Minister to take forward the idea of community budgeting and the previous Government’s work on Total Place, which I welcome, because my perception is that sharing the totality of public spending and of public services in the next wave of local government could deliver cost reductions and a much higher level of service.

The Committee reflected on a variety of evidence presented to us. It is a tough settlement, but one that presents a series of interesting questions and opportunities. It is a tough time for local government, but tough times produce change for local government, and many would argue that it is necessary change. The hon. Member for Sheffield South East touted the figure of 80% increases in local government spending under the previous Labour Government. It could be argued that public sector organisations need periods of retrenchment during which they can examine how their processes are operating. We might be looking at a period of necessary change in local government during a tough period of fiscal retrenchment across the economy.