Local Government Budgets

Jim Cunningham Excerpts

Wednesday 12th January 2011 Westminster Hall

[Mr Jim Cunningham (Coventry South) (Lab)]

May I take this opportunity to thank Mr Speaker for granting this debate on an important subject? I notice that the Minister is looking serious, to say the least. I want to start by mentioning the world economic situation that existed before the current Government came to power. It is worth reminding people that the economic difficulties were worldwide and started in America with Lehman Brothers. As hon. Members will recall, the then American President could have taken action to bail out Lehman Brothers, but chose not to. That obviously had a knock-on effect on the banking system, particularly in this country.

Hon. Members will also remember looking at news bulletins that showed people queuing up to withdraw money from banks such as Northern Rock. Had the then Government not taken action across the whole economic fabric of this country, that bank may well have collapsed. Despite all their faults, the previous Government introduced a number of measures to address the situation, such as the car scrappage scheme. Last week’s figures from the motor car industry show that sales have gone up by 2 million this year, which demonstrates that the measures taken by the previous Government to address the problem have paid off. It is worth reminding ourselves that in 1997 when Labour took office, 50p from every £1 of taxpayers’ money was used to pay off the national debt. During their first two years, the previous Government spent a lot of time doing exactly that—paying off the national debt.

Measures implemented by the present Government will certainly have an effect on places such as Coventry, and on a number of local authorities up and down the country. A number of west midlands MPs are present in the Chamber, and they will want to talk about how the Government’s policies for local government will affect their particular situations. The details in the provisional local government settlement have created a lot of problems for many local authorities, and brought further bad news as far as Coventry is concerned. The £19 million cut in the formula grant is most worrying, as are cuts to other specific grants of £17 million. Incredibly, at this late stage we still await the details of some grant funding streams from the Government that have not yet been clarified.

At present, Coventry city council is trying to manage the massive and inequitable reduction in resources announced on 13 December. In fairness, it has tried to take sensible steps to anticipate part of that reduction, and to its credit it has redesigned its services and introduced modern procurement practices. The Minister has praised Coventry for its efforts to look for value for money; nevertheless, I want to highlight the scale of the grant reductions facing the city. Because of the cuts, the council has been forced by the Tory-led Government possibly to cut more than 500 posts over the next 18 months. The amount of money the council spends on the local economy will also reduce dramatically, and if we add to that the capital proposals for the Building Schools for the Future programme, that is another £300 million that could leave Coventry’s economy. We are not yet clear what the capital allocation will be for repairs to school buildings and the rebuilding of schools. We should have received information on that this month, but we are still waiting for the Secretary of State for Education to provide it. That has an impact on staff in Coventry city council. The front-loading of cuts means that staff losses will be required at an early stage of the spending cuts, which will affect not only staff but families across Coventry. The overall impact of the measures means that Coventry council is expected to lose about £45 million.

Let me turn to the impact on the west midlands economy. The cuts will have a significant knock-on effect on local businesses and employment in the region, and we can see what is happening in other sectors as cuts and reforms begin to bite. In the health sector, for example, possible cuts were announced last Monday in the local press—in Coventry and Warwickshire, some 450 jobs could go in the national health service. Cuts of over 20% are projected for the West Midlands police force, which will have an impact on the fight against crime. As I have indicated, we do not know what will happen with the Building Schools for the Future programme.

The public and private sectors will not be able to invest in the regeneration and infrastructure of the region. We are still awaiting a decision on the Knuckle project, which could help the employment situation in Coventry. Over the years, Coventry MPs have lobbied various Governments in order to get that project off the ground. I will not go into great detail about that, but I hope the Minister will tell his colleagues that we need a decision that can help to mitigate unemployment in Coventry.

The abolition of funding from regional development agencies has meant that there is little funding to lever in private sector investment for large-scale redevelopment projects. There are two parts to local government cuts for Coventry city council. First, the formula grant will lose in excess of £19 million, and secondly, specific grants will lose in excess of £17 million. There will be a 27% cut to local government funding over four years, which in real terms equates to a cut of 8% per annum to the formula grant.

As I said earlier, there will be further cuts to specific grants, but—unbelievably—we will not know the final grant settlement until the end of January 2011. That puts Coventry city council under further financial pressure and it will not be able to continue providing services at the same level. There will be far fewer grants and they will have a lower overall value. It is a great concern that many grant streams will end. That will have a significant impact on Coventry—some 58% of the council’s gross expenditure for 2010-11 is resourced through specific grants, and £19 million of grant funding is likely to fall out, including a large number of former area-based grants such as local enterprise growth initiatives and a number of children-related grants. The future is unclear for Connexions and adult education.

Some grants that will end immediately include various education grants aimed at raising school standards; employment activities that help people back to work and, as a consequence, strengthen the local economy; community services; one-off grants to the homeless; sporting futures and football foundations; youth crime action; dealing with fly-tipping; and environmental grants for safer communities. We must consider other measures that will affect the disadvantaged. The front-loaded cuts proposed by the Government, combined with the impact of the VAT increase, will mean fewer services, of a lower quality, although people will be expected to pay more for them. That will be this Government’s legacy.

[Emma Reynolds (Wolverhampton North East) (Lab)]

I could not agree more with my hon. Friend that it is the poorest who will be hit hardest. In Wolverhampton, the 28th most deprived local authority in the country, we are expecting cuts to the city council budget of 24%. Does my hon. Friend agree that such cuts are too fast and too deep and will hit the poorest hardest?

[Mr Cunningham]

Obviously, I have to agree with my hon. Friend. As she will know, the Building Schools for the Future programme certainly affects her constituency, and there will be an economic impact on it in that regard. The Government, although there was an economic problem, have gone over the top in addressing it. That has become apparent as they have rushed into all these local government cuts.

Capital funding has all but dried up. We are seeing the abolition of Building Schools for the Future where money has been lost, there is no replacement work and schools are in desperate need of repair. Notwithstanding the cuts to housing benefit and council tax administration costs, in real terms central Government will be cutting 5% of support at the time when administration is most needed. There are more claimants than ever before. The unavoidable conclusion of those actions is that many of the poorest will be affected disproportionately. That includes the proposals relating to legal aid, which is not part of this debate.

We were preparing a four-year plan to deal with the situation, and obviously there would have been a certain amount of rationalisation as far as we were concerned, but we certainly would not have been rushing in all directions, as the present Government have been doing over the past seven or eight months, to inflict cuts on people.

There is a new word for cuts these days: I am talking about the thing called “damping”. No doubt the Minister will enlighten us on that one. The coalition’s damping methodology throws up a number of concerns for the people of Coventry, which I shall briefly discuss. Once again, Coventry has lost resources. We did so in the 1980s under the previous Conservative Government. Our capital programmes were capped in those days. People have short memories. What the present Government are doing is not new; the then Government were doing it way back in the ’80s. For the period of 2011-12, Coventry is set to lose £8 million through that process alone. That leaves the authority with a reduction in resources of 6%, which is 1% worse than the national average. The coalition has tried to defend the damping process by saying that the money is being given to the more needy authorities. However, that is simply not happening in many instances.

Let us consider the main problems with damping as many authorities see it. On closer inspection of the actual effects, the damping in the provisional settlement considers only authorities’ formula grant; it does not consider the authorities’ change in overall resources. Relative spending power combines the impacts of formula grant, council tax and other revenue grants.

Although the average is a 5% reduction, there is wide variation in the outcomes for individuals. The Government have tried to disguise how deep the cuts are by including in their calculations money that councils raise themselves. Their own statistics reveal that councils will lose on average 12.1% of their core central Government funding this year. Perversely, six of the most affluent local authorities will gain a joint total of £130 million from the damping process. For example, West Sussex gains £6 million, with a reduction of less than 1%. Richmond upon Thames gains £15 million, with a reduction of less than 1%. Alarmingly, Surrey will gain £62 million from the damping process. Clearly, this damping is not fit for purpose—to coin a phrase from a former Home Secretary and colleague of ours—and should not be used to allocate formula grant.

We suggest a change to the damping system. Many councils raise far more from council tax than they receive from the Government. Therefore, a comprehensive assessment of each authority’s overall resource position should be examined. The current unfairness is taking money and jobs out of Coventry and 77 other authorities across the country. I urge the Minister to consider changing over to that approach, which, as I understand it, has been suggested to civil servants by officers from Coventry city council.

There is an overwhelming lack of clarity from the coalition Government about the time frame. Councils across the west midlands and beyond are being forced to make rushed decisions, with no time to plan for the consequences. That could end up costing more than it saves. There is a lack of information. Councillors and officers are in no way information-rich as they go into this unfamiliar process. There is little guidance from the Department and there is great uncertainty. The Secretary of State for Education’s capital spending review is not expected until later this year. We thought that it would be January and, as I have said, I am not clear now on when we shall know what the settlement will be.

For all the coalition’s talk of localism, it has dumped its cuts on local councils. The coalition’s plans for local government do not include growth or jobs: it is merely a deficit reduction policy. The coalition must make up its mind. Is it dealing with a new economic situation, which was the original argument, or is it rebalancing the economy, which is the new one? The solution is the same, but the approach and the reasons are different.

[Mr Marcus Jones (Nuneaton) (Con)]

Thank you for allowing me to speak today, Mrs Brooke. I congratulate the hon. Member for Coventry South (Mr Cunningham) on securing this important debate, although some of his opinions on the overall situation in local government in Coventry and the west midlands may well differ from mine. Despite what the hon. Gentleman said and the synthetic rage from Opposition Members, local government had known for some time that whichever party formed a Government following the last general election, budgets for councils in the west midlands and for most councils across the country would reduce dramatically. That is not a hidden fact and not something that we should forget. Nor should we forget that the public know that the country has a massive deficit. We can talk about how that was caused. Obviously, the bankers are very much at fault, but the previous Government were also very much at fault for not having a proper system of regulation in place for the banks. The banks failed on their watch. They cannot get away from that point.

[Mr Cunningham]

Obviously, the hon. Gentleman is entitled to his point of view, but he certainly was not in the House, although I and my colleagues were, when the issue of Northern Rock arose. The then Opposition—the hon. Gentleman’s party—had no solution to that. In fairness, the Liberal Democrats said that we should nationalise Northern Rock. We said that we would have a look at that. Equally, if we look at the record of the last Parliament, we see that the hon. Gentleman’s colleagues always argued against regulation. Whether we were talking about banks or the private sector, they argued against regulation, and the only regulations that they are talking about abolishing now are those on health and safety.

[Mr Jones]

I thank the hon. Gentleman for his comments, but we cannot get away from the fact that his party were in government; the banks failed on his party’s watch. We saw the first run on a bank for more than 100 years. That happened on his party’s watch. His party, not my party, was responsible for regulating the banks and it failed. The public know that and know that we must deal with the deficit. It is running at such a level that we are paying £120 million a day in debt interest alone. If we do not deal with that, not only will public services and the amount of money that we have for public services be vastly reduced, but the point also needs to be made that we risk putting this country in a situation like that which we have seen in Ireland, Greece, Spain and, probably, Portugal.

Let me return to the Government settlement in relation to councils. The better councils, including those across the west midlands, have been planning for several years for how they would deal with the inevitable cuts in local government funding. We should acknowledge that there have been reductions in formula grants for many councils over a number of years. The public have been looking to councils to show some leadership and show how they can deal with the very difficult situation that we all know we are in.

The previous Conservative administration at one of my local councils, Nuneaton and Bedworth borough council, did an enormous amount of work before the elections in May with Rugby borough council. That was about saving money through merging back-office functions, reducing the amount of management and sharing management. They were on course to save in excess of £2 million to £3 million. Unfortunately, the current—now Labour—administration in Nuneaton and Bedworth has politically abandoned that work and decided not to pursue saving money by reducing back-office functions. I am surprised by that because the previous Labour Government advocated it as a way for councils to save money in what they knew would be difficult times, and the current Government also advocate it.

I fear that Nuneaton and Bedworth council will look to make up its budget through massive rises in parking charges, as it has already shown by implementing a 25% rise in charges in the past couple of weeks. Inevitably, it will also make large increases in fees and charges elsewhere and, I am sure, huge cuts to front-line services through lack of foresight and forward planning.

On the grant settlement and the formula grant, I would like to discuss the disparity in settlements across the country that the hon. Member for Coventry South mentioned. Disparity is nothing unusual, because under the Labour Government, Warwickshire county council, for example, was particularly disadvantaged by its grant settlement year after year when compared with councils in areas such as the north-east. They received huge increases in grant funding while Warwickshire’s funding decreased and was continually behind the curve.

Looking beyond the grant settlements, we have seen some positives from the Government recently, which I welcome, such as allowing councils more freedom to deal with the issues that they face. Performance indicators have been the bane of many councils over a number of years—the comprehensive area assessment and the local area agreement. In reality, performance indicators have done very little either to improve the quality of local services to the people or to increase and improve outcomes, and particularly to reduce the gap between rich and poor. We now know that during the Labour Government, inequalities between rich and poor increased—they got worse, not better. Millions of pounds, even in very small authorities, have been wasted. Hopefully, authorities can put that into front-line services, rather than into writing a ridiculous number of plans or strategies, which have little or no effect.

The formula grant is a complex animal. It offers no transparency to local people over how local services are provided. People in local government, and possibly people in the Department, do not have a great understanding of the formula grant and how it is arrived at. What can be done to simplify the minefield of local government finance to make things more transparent for local people, so that they understand fully how taxes are raised to pay for local government and how its finance is allocated?

One area of concern within the current grant settlement is the transfer of concessionary travel from borough and district councils to county councils. That affects us in the west midlands in two-tier authorities, and particularly affects the two local councils in my constituency—Nuneaton and Bedworth and North Warwickshire borough councils—which is obviously of great concern to my constituents. With the recalculation of the grant, Nuneaton and Bedworth is likely to be disadvantaged by the loss of about £200,000 and North Warwickshire by about £300,000. I would like to know what the Minister can do to mitigate the effect that the transfer of the responsibility will, potentially, have on local services in Nuneaton.

I conclude by reiterating that this is a tough settlement. We all know that we have a tough settlement and it is incumbent on local authorities to work with local people and to ensure that they deliver on the priorities for those people. There are also certain anomalies that the Government need to mitigate, particularly the transfer of responsibility for concessionary travel. I look forward to hearing the Minister’s response.

--- Later in debate ---

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Brooke. I, too, congratulate my hon. Friend the Member for Coventry South (Mr Cunningham) on securing this important debate on the impact of what the Government are doing to local government in the west midlands.

I start with an overview. The Government have made choices about the speed, extent and distribution of the cuts, but the cuts are too fast and too deep, and are targeted at deprived communities and vulnerable people. There is a consensus across the House on the need to reduce the deficit, but there are alternatives to these unfair and unreasonable cuts.

The coalition Government have made their choice. They have chosen to hit local government with bigger cuts than Government Departments, and they have chosen to front-load them so that the heaviest cuts fall in the first year rather than being spread more evenly over the next four years. They have also chosen to impose the cuts on the most deprived areas and on lower and middle-income communities, rather than distributing them more fairly. My right hon. and hon. Friends were therefore right to highlight the impact that the cuts will have on the great cities of Coventry and Birmingham.

Before proceeding to examine the impact of the cuts on local government in the west midlands, it is important to tackle the economic mythology that lies behind what is proposed. It is vital that that economic mythology, which has been propagated in defence of what the Government propose, is understood for what it is—mythology. We have heard, and will doubtless hear once again, that the cuts are unavoidable. We have heard, and will doubtless hear once again, that these deeply damaging cuts to local government are all Labour’s fault. However, that is part of the Tory-led coalition Government’s approach of rewriting history in order to justify their ideological vision.

Let us be clear: it was irresponsible bankers that caused the credit crunch and the deficits across the world that followed. We have seen recession on all continents and in all countries. My hon. Friend the Member for Coventry South was right to say that it was decisive action taken by the Labour Government that saw growth return and borrowing fall, and that saw jobs being protected. However, that action was opposed at every stage by the Conservative party.

Borrowing has risen in the UK and throughout the world as we tackle the global financial crisis. It must be brought down with a clear deficit reduction plan that has growth at its heart. It is a deceit for the Conservatives to claim that irresponsible spending is the reason why borrowing is high. Before the global financial crisis, Labour had paid down some of the debt. In 2007-08, as the crisis hit, the UK had the second lowest debt of the G7 countries at 36.5% of GDP. It was low because we had chosen to pay off the debt, reducing it from the 42.5% that we inherited from the previous Conservative Government. Borrowing rose because of the global financial crisis, and the deficit was unavoidable—but the Tory-led coalition’s austerity programme is not.

[Mr Jim Cunningham]

It is worth pointing out that when we were in government and dealing with the crisis, we had a triple A credit rating. We had 14 years to pay off any borrowing. I note that the Government have totally ignored that. I also note that although George W. Bush refused to bail out Lehman Brothers, in the last month of his presidency he allocated billions of dollars to help the banking system in America. The Tories conveniently forget about that; they are on planet Cameron.

[Jack Dromey]

My hon. Friend is right. The leadership given by the Labour Government was followed worldwide. Had it not been for that leadership, we would have seen not recession but a prolonged slump over a decade and more.

No major economy is cutting its deficit at the reckless pace being followed by the UK. The Tory-led coalition’s plans to tackle the deficit, which go too far and too fast, are not only avoidable; they are downright dangerous. However, nowhere are they going as far and as fast as in local government. We should consider the depth and speed of the cuts, and the fact that the Government are in denial about the impact of their choices.

The Secretary of State for Communities and Local Government was so keen to curry favour with the Prime Minister and to become a member of the Chancellor’s star chamber that he signed up to huge front-loaded cuts for local councils without putting up a proper fight. As a result, town halls throughout the country will lose an average of 27% of funding over the next four years, compared with an average of 11% for Whitehall. The Government have also chosen to front-load the cuts, so that the heaviest reductions will fall in the coming financial year. Councils have only until April to decide where to reduce spending. Coventry and many west midlands authorities face cuts to their formula grants of above 10%. With the added pressure of the loss of specific grants and the removal of ring-fencing, those councils must find spending reductions of more than £200 million in 2011-12.

It is a problem not only in the west midlands. The Association of North East Councils, a cross-party group, has said that the Government’s proposed local government cuts are “undeliverable” for some councils; and the president of the Society of District Council Treasurers has called the front-loading “disastrous”. The Secretary of State has not been willing to admit that the cuts are front-loaded; nevertheless, it is clearly another choice that was made by the Government.

Many authorities will be forced into taking damaging crisis measures. The hon. Member for Nuneaton (Mr Jones) is absolutely wrong: it is not true to say that local government was expecting the scale and speed of the cuts now being imposed upon it. Local government faces much deeper and faster cuts than expected, and they will come about in a few months’ time. Indeed, the Conservative chair of the Local Government Association said precisely that. That gives councils no time for innovation or to think of efficient solutions. Instead, there will be huge job losses and cuts to front-line services; and voluntary organisations funded by councils in the midlands will also face cuts.

Why is local government taking a 27% front-loaded cut, when Whitehall faces an average cut of 11%? Did the Government consult local authorities on the front-loading and other aspects of those cuts, and what steps did the Government take to satisfy themselves that the proposals were reasonable and workable? I suggest that the Government are in denial on all fronts.

The impact of the cuts is clear. The Local Government Association has calculated that 140,000 jobs will be lost in 2011-12. The Government deny that—or do they think that, as in the 1980s, unemployment is a price worth paying? The LGA said that councils will need about £2 billion for redundancy. The Government deny that, and have set aside £200 million to meet the cost of those job cuts. The Government have no idea of the cost of the redundancies, nor of the human cost of rising unemployment. The private sector, too, will be hit hard. For every job lost in local government in the west midlands, one job will go in the private sector.

The Government say that front-line services in the midlands can be protected. Before the general election, the Prime Minister said:

“But what I can tell you is any cabinet minister if I win the election, if we win the election, who comes to me and says, ‘Here are my plans’ and they involve frontline reductions, they’ll be sent straight back to their department to go away and think again.”

I would like to know the precise nature of discussions between the Secretary of State for Communities and Local Government and the Prime Minister. However, it is clear from what is happening in the west midlands that front-line services will be hit—and hit hard.

Birmingham city council, which is run by Conservatives and Liberal Democrats, has already announced measures to restrict social care funding to those assessed as “critical”, the highest level at which eligibility is set. Those people with substantial or moderate needs will instead be signposted to private and voluntary sector providers.

In Birmingham, children’s social care services are likely to see cuts of £10 million in 2011-12 and £16 million in 2014-15. Youth services will be slashed to save £3 million in the next financial year, and up to £4 million in the following year. Those cuts are just part of the £170 million that will be taken out of Birmingham city council’s budget. Much-needed services to the people of Birmingham will be lost.

The leader of Coventry city council has described the cuts as hideous, saying that the people of Coventry are paying the price for the bankers’ follies. My hon. Friend the Member for Coventry North West (Mr Robinson) was right to say that the cuts are not just restricted to local government. He pointed to the impact they will have on the west midlands police service. Up to 2,400 jobs are set to go, with more than 1,000 officers going over the next 12 months.

As my right hon. Friend the Member for Coventry North East (Mr Ainsworth) rightly said, the proposals are grotesquely unfair. There are many criticisms one can make of them, but the strongest must be that they have a disproportionate impact on deprived areas and on vulnerable people. In his statement to the House, the Secretary of State said that he sought to achieve

“a fair and sustainable settlement for local government…that is fair between different parts of the country.”—[Official Report, 13 December 2010; Vol. 520, c. 679.]

Yet data from the Department for Communities and Local Government demonstrate exactly the reverse. Even on the Government’s own measure of revenue spending power, the west midlands is being hit disproportionately hard compared with the leafy shires of Surrey and the Bracknells and Wokinghams of this world. Data from the House of Commons Library make that absolutely clear. They show that the most deprived authorities in shire districts will receive an 8.5% cut to their revenue spending power, while the least deprived face only a 4.9% cut. Wokingham borough council, the least deprived unitary authority in England, will have a cut to its revenue spending power of just 0.6%. The Government have chosen to hit hardest the regions that are already hard hit, and that includes the midlands.

My hon. Friend the Member for Birmingham, Northfield (Richard Burden) was right to say that the city of Birmingham, which is the 10th most deprived authority in Britain, faces cuts on a huge scale—£170 million next year. Yet, Solihull, right next door and ranked 199th in the deprivation index, will see a cut of less than half that, at 3.5%.

We all agree on the need to cut the deficit—of that there is no doubt—but there is an alternative to the speed, extent and distribution of these cuts to local government budgets over the next four years. The cuts are too deep and too quick. They will have a devastating impact on communities all around the country, with the most dramatic impact being felt in the west midlands. The Government have failed to listen to the concerns expressed by the communities and local authorities of the west midlands. The Opposition are determined to speak up for the communities and councils of the west midlands, and we call on the Government to rethink these cuts before lasting damage is done to the very fabric of our society and the most vulnerable within our communities.