Draft Local Loans (Increase of Limit) Order 2019

Jonathan Reynolds Excerpts

Thursday 3rd October 2019 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mr Gray, and, to be frank, it is a pleasure for the Minister and me to consider a statutory instrument that is not related to a no-deal Brexit. Instead, as he outlined, it relates to a fairly routine increase in the Public Works Loan Board’s borrowing ceiling for local authorities.

The Opposition believe that local government is at a crisis point in the funding that it requires to meet its needs. Many authorities face pressures, particularly with respect to severely rising adult social care costs, alongside what have been the most severe cuts we have ever seen in central Government funding. That is why Labour has committed that in government we would give local government the extra funding it needs, as we outlined in our 2017 manifesto. We would initiate a long-term review of council tax and business rates to ensure that local government has the sustainable revenue it needs.

The draft order will permit higher borrowing. Investing to save is clearly a good thing for local authorities, but the Minister will be aware of concern that the shortfall in local authority budgets is being met with more borrowing by councils to invest in assets in order to provide the revenue to meet that shortfall. Has his Department conducted a proper assessment of that issue?

Research by the House of Commons Library in September 2019 on the use of commercial property investment as a source of revenue notes that

“local authorities have experienced substantial reductions in central government funding since 2010. The Institute for Fiscal Studies claimed that grants to local authorities were cut by 36% between 2009-10 and 2014-15…Revenue Support Grant (RSG) funding is projected to be cut further, from £11.5 billion in 2015-16 to £5.4 billion in 2019-20.”

It also cites a report that states:

“Driven by increasing social care costs, if they remain constant, local government faces a £5.8 billion funding gap by 2020.”

The research paper addressed evidence that the financial pressures on local authorities mean that they turn to different methods to seek funding to alleviate the strain, namely borrowing at a lower rate from the Public Works Loan Board and investing in higher return asset classes, particularly commercial property. Is it still Government policy that such a practice should be permitted without formal restriction? Will the Minister elaborate on whether any assessment has been conducted of what proportion of any increased funds may fuel this type of activity, given that it is not without risks and particularly given how exposed commercial property would be to a no-deal Brexit?

Local authorities can of course be creative and entrepreneurial in how they fund themselves, although in many cases they have been forced to do so through desperation because of the cuts they have faced. Any increase in the borrowing limit should not detract attention from the very real problems that local authorities face in meeting their budget constraints as a result of austerity policies. I seek the Minister’s assurance on that particular point.