Local Government Finance

John Hemming Excerpts

Wednesday 12th February 2014 Commons Chamber

[Brandon Lewis]

Actually, it has not. A council that has some of the greatest cuts is my own local authority in Great Yarmouth, which was left a black hole by the last Labour Government through the working neighbourhoods fund. I gently say to the hon. Lady that she might want to remind Mayor Anderson that Liverpool’s authority has £116 million in reserve, one of the highest spending powers in the country in the first place, a regional growth fund and a city deal. This Government are working with such local authorities.

[John Hemming (Birmingham, Yardley) (LD)]

I thank the Minister for meeting MPs from Birmingham to look at this issue, and I congratulate hon. Members generally on highlighting the difficulty of working out what a fair system is for allocating local government finance. The Government have focused on percentage reductions in spending power. Does the Minister agree that, after incentives, looking towards the reduction in percentage spending power, not absolute spending power, provides an equality of pain that gives us a way forward? It takes into account the fact that in areas like Greater Birmingham, where people work in Birmingham but live around it and require services from Birmingham but are not contributing towards—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Before the Minister replies, may I remind the House that 17 Members wish to participate in this debate? Interventions must be short, and I will start to interrupt them if they continue to be as long as they have been so far.

--- Later in debate ---

[Andy Sawford (Corby) (Lab/Co-op)]

Local government faces the biggest cuts of any part of the public sector. All around the country, councils are having to take incredibly tough decisions about the future of local services.

The Minister is like an abstract artist—the picture that he has painted today is clearly a departure from reality. Nobody believes his figures. He has claimed that the cuts are modest. He says that they can all be dealt with through efficiencies and that there will be no impact on front-line services. He should tell that to the elderly people who have had their home care withdrawn. He should tell it to the parents of children with special needs who cannot get the help that they need. He should tell it to the shift workers in my constituency who have to walk home at night in darkness because the streetlights are not on. He should tell it to the young people whose bus to school, college or work no longer runs. He should tell it to the Tory council leaders who were so appalled at the lack of understanding of the impact of the cuts among Ministers in his Department that they wrote to the Prime Minister to complain about the posturing. He should tell it to the council leaders in the poorest areas of our country who face the cruellest, deepest cuts of all.

The real picture is stark. The LGA says that over this Parliament, local government core funding will fall by 40% and councils will have to make £20 billion of savings. As hon. Members have pointed out, all councils face challenges, but the fundamentally unfair distribution of the cuts is particularly damaging to many communities. Even under the Government’s spending power measure, which is deliberately designed to mask the real impact, the 10 most deprived areas have had a cumulative cut that is 10 times more than the 10 least deprived areas.

The Prime Minister used to say, “We’re all in this together”, but his local authority and that of the Secretaries of State for Justice, for Health, for Education and for Defence, are getting an increase in spending power, while local authorities such as Hackney, Liverpool—as we have heard—and Manchester face the largest cuts. The coalition peer, Lord Shipley, said in the House of Lords last month that

“there is no doubt that the cuts have been steeper in the more deprived parts of the country.”—[Official Report, House of Lords, 9 January 2014; Vol. 750, c. 1700.]

[John Hemming (Birmingham, Yardley) (LD)]

If the Labour party wins the general election it proposes further cuts. What formula would it use to identify the equity or fairness of any distribution of cuts?

[Andy Sawford]

The Labour party has said that we accept the Government’s spending plans, but what we will not do is cut in such a fundamentally unfair way. I will come on to what the Labour Government will do.

--- Later in debate ---

[Mr Clive Betts (Sheffield South East) (Lab)]

I want to address three fundamental unfairnesses in the settlement. The first is the lateness with which the Government made their decisions. Reference has already been made to the threshold for council tax increases. It is simply not fair for local councils to find that out when many of them had already come to their budgetary decisions. The Local Government Chronicle has just done a survey of 160 local council finance officers, 14% of whom admitted that they were basically scrambling around making changes to their budgets at the last minute in an attempt to anticipate what the threshold would be. Local authorities have a difficult job anyway, without the Government making it unnecessarily more difficult in that way.

Secondly, let us look at the cuts that local government is once again facing compared with the rest of government. Around 20% of the grant to local authorities will be cut in this settlement and next year’s. That is far bigger than the cut to other Departments. Even by the Government’s own figures for spending power, the cut over those two years, excluding the ring-fenced grants for public health and the better care fund, is around 10%. Again, that is much bigger than for other Departments. The Local Government Association has calculated the real-terms cuts in Government support to local authorities over the course of this Parliament at 40%—more than twice that for other Departments. Are the services that people receive from their councils—road sweeping, refuse collection, public health, checking food hygiene, local leisure centres and parks—really less important than the services provided by all other Departments? I do not believe they are, but if they are in the Government’s mind, they have to justify that as the basis for extra cuts for local authorities.

Let us look at the distribution of unfairness among local councils. We heard an interesting analysis earlier from a number of my hon. Friends who asked the Minister questions. Essentially it boiled down to this. Councils with the highest grant have had the highest cuts; those councils had a higher grant because they had higher needs; therefore, councils with the highest needs have had the highest cuts. That is the logic of the situation.

[John Hemming]

Will the hon. Gentleman give way?

[Mr Betts]

I will give way once.

[John Hemming]

Earlier the shadow Minister was unable to tell the House how he would allocate the cuts that Labour would make to local government. Has the hon. Gentleman been told what the Labour party would do and, if so, will he tell the House?

[Mr Betts]

I am sorry, but if the hon. Gentleman wants me to invent a grant settlement in the course of a six-minute speech, I am not going to oblige him.

When the Minister appeared before the Select Committee on Communities and Local Government, he admitted a fundamental change of Government policy, away from a needs-based system. The only needs taken into account are those reflected in the baseline of business rates, which started with the new arrangement in 2013-14. The new term—the settlement funding agreement—is really composed of two parts: the business rate base and the revenue support grant. As the business rate base is held constant or increases with inflation each year, the totality of cuts that the Government make falls on the revenue support grant element of the settlement funding agreement. Within the revenue support grant is something called the council tax resource equalisation adjustment. That has been cut by 25% this year, yet it is the mechanism by which extra resources are given to the poorest areas with the most deprivation. Those areas have had the biggest cuts, with resources transferred away from them. That is how the mechanism works in practice.

We can add to that the new homes bonus, which of course is not a bonus from Government, but is top-sliced from other Government funding—on the basis, therefore, of the grant that authorities already have—and then transferred to authorities according to the homes they are building. The Minister might say that that is an incentive to build homes—that is not what the Housing Minister said last time he was asked—but in the end, that money comes from a top-slice of grant, which means that those authorities with the greatest need and the greatest amount of grant pay the most into the system in the first place, and most of them lose out in the totality of the process.

Reference has already been made to my authority, Sheffield. The Minister likes to make comparisons with other areas that have not had as much grant in the past, saying that the Government are only doing a bit of evening up. Wokingham does not have the same needs as Sheffield, but in 2015-16, if we exclude the ring-fenced public health and better care fund grants that can be spent only on what they are allocated for, the spending power of Sheffield will be the same as that of Wokingham. That is impossible to justify according to anybody’s definition of fairness and reasonableness. Leeds already has less spending power and Newcastle will have less in two years. That is simply unfair. Does anyone on the Government Benches want to justify the idea that Wokingham’s spending power after 2015-16 should be higher than Sheffield’s? That is the system that Ministers are creating.

As the Minister knows, I am not against bringing some incentives into the local government finance system. I understand the desire for some localisation of business rates. I am in favour in the longer term of councils having the chance to raise more money at a local level rather than being dependent on Government, as an important element of localism involves freeing councils up to raise funds as well as giving them more powers.