Financial Sustainability (Local Government)

John Pugh Excerpts

Tuesday 7th January 2014 Westminster Hall

[John Pugh (Southport) (LD)]

I congratulate the hon. Member for Birmingham, Edgbaston (Ms Stuart) on calling this timely debate and on introducing it in a constructive fashion. However, I do not share her enthusiasm for elected mayors, so I must demur on that point.

Several people in the room have probably sat on both sides of the political fence that divides local government from central Government, so they will be familiar with the scenario many of us have had visited on us: we listen to a statement about the local government finance settlement and think, “That’s not so bad,” but when we talk to our borough treasurer, we find that the world has more or less fallen in. I am very familiar with that scenario because my first experience of Whitehall involved coming down to Richmond house to see the now Lord Boateng, who was a Minister at the time. I was castigated on behalf of Sefton council because he felt we had quite enough money to deal with our problems, while we felt the money he was giving us fell significantly short of what he should have given us.

That scenario is fairly familiar, and it is part of a very dishonest conversation that has taken place decade after decade between local authorities and central Government. It is a dishonest conversation about local resources, central resources and their effect on services. All Governments say that the funding settlement is fair and generous in the circumstances and that councils surely have sufficient funding to get by. If Ministers need a further defence, they will point to occasional—or perhaps less than occasional—instances of local authority inefficiency or profligacy. They will then point to some local authority—normally one from their own political party—that does things particularly well and set it up as an exemplar for all others to follow.

Local authorities, in turn, talk about savage reductions, service impairment and the new and sometimes unnecessary burdens that have been imposed on them, but not financed, by central Government. Characteristically, they will accuse the Government of deceitful sleights of hand, favouritism and formula rigging. I think Members will acknowledge—particularly those who have sat on both sides of the fence—that those involved put their side of the case in a very one-sided way.

The past few years have been no exception. It helps local authorities that are making their case to their local populations to blame the Government for the totality of their woes, whether those result from demographic factors or unaddressed issues from years gone by. Most local authorities worth their salt big up the cuts, blame all the financial pressures they face on central Government and try as far as possible to ignore their own failings.

Equally, central Government help themselves by confusing the grant regime, changing the names of the grant from year to year—from revenue support grant, to formula grant, to spending power or whatever—and presenting their case in the best possible way. The Minister and I have had many interesting discussions about whether to describe a local authority’s situation in terms of a fall in its spending power or a fall in its grant. I prefer the latter; he prefers the former.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

The hon. Gentleman talks about authorities bigging up the cuts, but, taking into account all the adjustments he has just spoken of, Sheffield will, by 2015-16, have seen a 50% reduction in funding since 2010. That is not bigging up the cuts; it is the absolute fact. Sheffield cannot go on with that level of cuts to its funding base.

[John Pugh]

I have no experience of Sheffield, but I have experience of my own local authority, and at times it rolls up many years’ cuts into one total figure, as if those cuts were imposed in one particular year. That is par for the course. Equally, central Government will find obvious scapegoats and point to the things such as assets and reserves—they are sometimes usable, but sometimes not—as though they can be regularly tapped.

Such things are all part of the toolkit or the argument, and most people are fairly familiar with them. The public tend not to pay a lot of attention to the debate, and they almost split the difference in many cases, because they are not certain who is telling the truth. They do get exercised when council tax goes up and certainly when services they are particularly enamoured of disappear, but, by and large, they are fairly agnostic on this issue, and they do not always know who should be blamed.

However, the game has now got deadly serious. What has been a familiar scenario over many years is now having a more severe effect. As the hon. Member for Birmingham, Edgbaston suggested, the sustainability of local services and, in some cases, local councils appears to be at stake—there is a fair case to be made in that respect. If we cut through what I described as the usual dishonest conversation, there are four absolutely indisputable facts.

First, in terms of deficit reduction, councils have been hit first—that is not particularly helpful, because they have to work within annual budgets and cannot make plans over two or three years—and they have been hit hardest, as has already been said. The second fact is that the reduction in central Government expenditure is considerable, and it may end up being something like £20 billion.

Thirdly, it is also an indisputable fact that the funding reduction for local authorities is proportionally greater in the poor areas and particularly the metropolitan districts. I take that as an unarguable fact, which we can all acknowledge around the room, although we may want to explain it in different ways. That fact is well documented, and it is what the Rowntree research, the Institute for Public Policy research, the National Audit Office and the Audit Commission report “Tough Times” all say. It is an indisputable fact.

Clearly, one element in it was the initial loss of area-based grants. We could argue that that happened because the previous Government were looking after the local authorities that were most of their persuasion. However, the fall in the less affluent areas, if I can put it like that, is in no way compensated for in its totality by city deals or regional growth funds. Those are often talked of as a compensating factor, but they must be looked at in terms of the general decline in regeneration funding in those areas as a whole. Taking the totality of the issues, I would be prepared to—although I will not—argue that case at length. There is nothing to suggest that things are otherwise; the proportionate reduction in poorer areas is greater.

It would be inappropriate for the Minister to respond, as often happens in parliamentary debates, by saying that none the less Birmingham gets so much per head, as opposed to some other area that he wants to nominate. I assume that we all buy into the assumption that grant support for local authorities must be based in some way on need. Therefore we would expect per capita spending in Liverpool, for example, to be greater than per capita spending in Surrey, and so on.

[Mr Gray]

Like the hon. Member for Birmingham, Edgbaston (Ms Stuart), the hon. Gentleman makes a powerful case for maintaining spending on local government. I disagree with his thesis that cuts are deeper in urban areas than rural areas, but let us leave that on one side for a moment. If I am right in guessing that the hon. Gentleman is saying that spending must be maintained at local government level, will he, a Liberal Democrat, tell us which central Government budgets he would like cut so that the local government settlement could be increased?

[John Pugh]

I am not necessarily making a case for increasing the local authority settlement. I am mainly making a fair case for different distribution, and for spreading it over more years, to enable local authorities to make the appropriate adjustments.

My fourth point, which has not been stressed in the debate so far, is that local authority spending is now significantly unbalanced. Because of the nature of the cuts, local authorities have had to concentrate on their statutory services, which primarily means social services. Most ordinary punters and electors do not ordinarily interact with social services. That is a democratic problem as well as a financial one. We have all heard of the graph of doom and the view that some local authorities will end up spending on nothing but social services. If that happens, neither electors nor the authorities will welcome it.

The hon. Member for Birmingham, Edgbaston is right about the situation. She did not say that it was not sustainable; she said that the trajectory we are on is not sustainable, and I agree. Various things could be done about it, and she suggested some. I shall not cover the same ground that she did. We can spread good practice and develop community budgets—the Select Committee did some work on that. We can talk about possible savings from the integration of health and social care, which would be good, or about possible benefits from the repatriation of rates, and accompanying incentives.

We can talk about things on a grand scale, as the Local Government Association is doing at the moment with the Rewiring Public Services campaign, which would also be good. All those ideas are ways forward, but they will not work at all unless we sensibly and intelligently—starting in this Chamber—stop the dishonest conversation and look at the facts for what they are. If we concentrate on formulae designed to present the Government’s or a local authority’s case polemically in a particular way, we will never get central and local government speaking the same language, or succeed in making local authorities sustainable as a result.