Local Government Finance

Lord Beamish Excerpts

Wednesday 8th February 2012 Commons Chamber

[Grant Shapps]

Before we have a barrage of interventions, let me explain to Opposition Members how we did so.

For a start, my hon. Friend’s local council had an 8.8% reduction in spending power, which was the highest of any authority represented in the House, yet he made the comments that he did. We kept the floors and damping in place, we introduced the transition fund, which continues this year, and we did something that no Government of any size or colour had ever done: we increased the needs index from 73% to 83% in the formula grants.

[Mr Kevan Jones (North Durham) (Lab)]

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[Grant Shapps]

Perhaps when I take the hon. Gentleman’s intervention, he will tell us why he did not encourage his Government to increase the needs formula when they were in power.

[Mr Jones]

Why is Hartlepool, in the north-east of England, facing a 5.7% reduction in spending per dwelling and paying 0.2%—£5 a dwelling—into the damping fund, while Wokingham’s spending per dwelling is being cut by 1.5%? That surely cannot be fair when we compare the needs of Hartlepool with those of Wokingham.

[Grant Shapps]

The hon. Gentleman’s own local authority had a reduction of 3.2% this year—[Interruption.] His authority had a reduction of 3.2%, which off the top of my head is slightly less than my local authority’s. Different authorities will experience different reductions. We just heard from my hon. Friend the Member for Great Yarmouth (Brandon Lewis), whose local authority had an 8.8% reduction, yet he sent the very clear message to the House that, because his authority has made some of the right moves, it has been able to cope with the changes.

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[Bob Blackman (Harrow East) (Con)]

I feel suitably constrained by your introduction, Mr Deputy Speaker.

It is a great pleasure to follow the right hon. Member for Leeds Central (Hilary Benn), not least because he is so eloquent and sets out such a strong case for local government. Of course, he knows a thing or two about it, as he was in local government before he arrived in this place.

My starting point is that this is the second year of a two-year settlement. We must consider how far the Government have departed from that settlement in this second year. The reality is that there been improvements to the financial settlement for local government. The one thing for which local government has cried out for many years is certainty over funding. Even if it is bad news, it is better to be certain about what will happen. I am one of those who praised the previous Government for introducing a three-year settlement, as it was probably one of the few things they did well. Even though the settlement for many local authorities was not good, at least it was certain and everyone knew what would happen.

I listened as many Opposition Members intervened on the Minister to ask about the reductions that their councils will suffer. When fundamental changes are made to any type of funding formula and any process of local government funding, there are bound to be winners and losers. One problem that has been associated with local government financing for so long, as the Minister rightly articulated, is the fact that the funding formula is horrendously complicated and virtually no one understands it. Figures are put in, indices are changed, the numbers are crunched and the figures come out. If those figures are not to everyone’s liking, people seek to change the indices to make the facts suit the result that they want.

[Mr Kevan Jones]

I know that the hon. Gentleman has a long history in local government and will be aware of the old council tax resource equalisation, which took into account the needs of different councils and gave a level playing field. Does he agree that what we have now is a system that redistributes resources from poorer areas to richer areas? Even worse than that, it gets poorer areas to pay for it under the new damping system.

[Bob Blackman]

I recognise the hon. Gentleman’s point. A key issue is that comparisons made year on year must consider the amount per person, per household and so on that the authority has in the first place. One problem under the previous Government was that we saw money moved from London to northern authorities; a deliberate decision was taken and it was quite clear that that was taking place. Now, the balance is being redressed. That is quite right, but the problem is that the hon. Gentleman is comparing one year with another rather than looking at the longer term issues and at how certain authorities have gained substantially over the longer term.

[Mr Jones]

Does the hon. Gentleman also recognise that those northern councils have a different council tax base? In the north-east of England, for example, 50% of properties are in band A, whereas in Surrey that figure is less than 2%, so even if those councils wanted to raise extra finance locally, their ability is severely limited.

[Bob Blackman]

I recognise what the hon. Gentleman says about council tax base. That is a fair point. I notice that over some 13 years the Labour Government declined to review the council tax base or the underlying valuations, and I notice that the Government have agreed to continue that process of not revaluing properties for council tax purposes.

We have the opportunity once again this year for a council tax freeze. That is welcomed by local authorities and hard-pressed taxpayers. The Government are committed to that and it should be delivered. I call on all local authorities to take the opportunity of the grant and to freeze the council tax across the country so that all hard-pressed taxpayers can gain the benefit. It is true that different authorities are doing different things across the country. I shall not go into detail; I leave that to others.

Before the last election, everyone knew that local government finance would be substantially reduced. It was in the Labour party manifesto and in the Conservative party manifesto. Everyone knew that it was coming. Every local authority, regardless of its political persuasion, should have planned for those reductions and should therefore have implemented them over the past two years. A series of measures could be undertaken, and I shall mention a few. The first is to cut executive pay. It is interesting that in the past few days the Labour party, in particular, has been talking about people receiving large amounts of public money. There is no doubt that chief executives and senior executives of local authorities have been the beneficiaries of huge increases in pay over the past few years. At a time when local authority funding is decreasing, it is right that senior executive pay in local authorities reduces.

I am not a great fan of my local council, Harrow council, but I take my hat off to it for the measures that it is introducing. Its chief executive is cutting his own pay. He is cutting the number of senior executives and their pay, and he has introduced a system of pay within the local authority which means that the workers on the ground will be paid the same hourly rate regardless of when they work, but they will work a normal working week.

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[Bob Blackman]

I thank my hon. Friend for reminding me that one of the necessary aspects of procurement is having suitable break points and review points in a contract, so that the contract is long enough for investment to take place but can be changed or terminated by the local authority if the service is not up to scratch.

I also take issue with the view of the right hon. Member for Leeds Central on balances and reserves. I feel very strongly that taking money from council tax payers and putting it into reserves or balances, rather than spending it on services, is theft from the taxpayer, because it is not being invested in the services provided. In my view, local authorities that maintain large reserves or balances are fundamentally fooling their taxpayers and should be exposed for doing so. Local authorities should maintain balances, but only balances that are required for cash-flow purposes or for funding in-year hikes that might take place.

[Mr Kevan Jones]

When the Prime Minister was Leader of the Opposition, he talked about the importance of mending the roof while the sun was shining. Given the uncertainty that the Government are bringing into local finance, is the hon. Gentleman really suggesting that local councils should have no reserves at all to fall back on if their local council tax base goes down following a big closure or some other catastrophe? That is just bad business.

[Bob Blackman]

I thank the hon. Gentleman for his intervention and for pointing out the issues relating to balances and reserves. They should be precisely for funding a local authority’s cash-flow requirements, not for saving huge amounts to cushion unexpected amounts. The reality is that there are authorities up and down the country that are sitting on huge balances. I take the view that no more than 10% of council tax take should be maintained as a balance.

I want to mention three other areas. The Government have changed the whole basis behind local government finance, and that is coming forward in legislation. That will change the whole ambit of how local authorities are rewarded. We had some interesting discussions on Second Reading of the Local Government Finance Bill about the fact that deprivation was a key driver for local authorities. The more deprived a local authority area, the more money it got. The Government are changing the whole ambit and structure of finance. We will have a situation in which house building leads to a new homes bonus, so local authorities will be rewarded for building houses and will receive finance as a result. Under the business rate retention scheme, local authorities will be encouraged to promote employment and job opportunities, so we will have an enterprise-led economy, encouraged by local authorities, and the onus will be on enterprise and not on deprivation..

I conclude by reflecting on what has happened in London this year. I applaud the fact that, after three years of council tax freezes under Boris Johnson, the Mayor of London is reducing—reducing!—his share of the council tax, not only ensuring that we have 1,000 extra police officers on the beat, but reducing crime and improving services to Londoners overall. Let us compare that with the record of the great pretender, the old pretender, who over eight years increased his share of the council tax by 152%. The comparison could not be starker. We get a better service and better value for money under the Conservatives.

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[Mr Betts]

Sheffield city council is making cuts of 11% in its budget this year, and that is substantially more than many councils in more affluent parts of the country are making—much bigger in percentage terms, let alone in amounts per head.

[Mr Kevan Jones]

rose—

[Mr Betts]

I will give way to my hon. Friend, but then I must make progress.

[Mr Jones]

Does my hon. Friend agree that it is nonsense to suggest, as the Minister did, that somehow an organisation such as Sheffield city council can have 11% taken from its budget without that affecting front-line services—no matter how many pot plants are consigned to the dustbin?

[Mr Betts]

I agree with that point without in any way saying that Sheffield city council spends a great deal of money on pot plants; of course it does not.

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[Annette Brooke (Mid Dorset and North Poole) (LD)]

I intend to be relatively brief, Mr Speaker.

We have to start by being clear that very tough cuts have been imposed on local government. It accounts for 25% of all public expenditure, so councils were always going to have to play a considerable role in fixing the black hole in the nation’s finances. It has been hard, given the front-loading of the cuts, but I wish to praise the many councils across the country that have approached innovatively the tasks with which they were faced. I sometimes think that central Government can learn from some local government practices, because councils are closer to the ground and have extra flexibility in how they approach things.

In my area, for example, two councils now share a chief executive, and there has been much more working together among councils, with the county council co-ordinating it. Poole’s unitary council is merging certain services with Bournemouth, which makes a lot of sense given that they are both relatively small unitary councils. A lot of action is taking place.

I am slightly frightened of getting absolute numbers and percentages mixed up, which is what has been happening all afternoon, but I point out that East Dorset council’s revenue support grant per head is £25.98, so there will not be a £200 cut. There cannot be. We therefore have to consider percentages. One might say that a more deprived area should not have the same percentage cuts as a less deprived one, but there is a difficulty with that. As we know, any organisation has certain basic costs that are the same. We need only look at schools, which need a certain number of staff whether they are big or small. That is an absolute fact.

[Mr Kevan Jones]

Will the hon. Lady give way?

[Annette Brooke]

I will not, because I want to make it clear that it is not correct to switch from numbers to percentages and to try to blur the picture. We know that the percentage cuts are large, averaging 3.3% but varying across the country. In fact, in my part of the country the percentages are towards the higher end.

One of the councils in my area, Dorset county council, is particularly concerned about the funding lost through the current formula damping. We can ask ourselves where that money goes, and we find that, probably quite rightly, it goes to more deprived areas. However, I am told that Dorset has lost a greater proportion of its grant entitlement through that formula—the Labour Government’s formula, I might add—than any authority in recent years. It will lose more than £7.4 million in 2012-13. There is great concern that the damping mechanism will become locked into the baseline for future years. I want to flag up that point as we move to a new system.

We must accept that the Government amended the funding formula to take greater account of councils’ need. Extra funding is available, for example to support adult social care, but I represent an area where the demand for social care is great in relation to resources. All Departments must give a great deal of thought to the funding of social care while we wait for the White Paper and for anything new to kick in, because here and now, councils across the country have enormous problems in ensuring that the most vulnerable people get enough support. That same situation applies throughout the country. There are pressures on that funding.

The new homes bonus is a plus, bringing in extra funding, and on balance, the council tax freeze for this year is a plus. I well remember being on the council under Labour, when the average increase in council tax in England was something like 10.4%, which enormously affected people who were just above the level of qualifying for any benefit. When I reflect back to that time, I recall that I was blamed as a councillor for that increase in council tax, which was because of Government funding. We come back to that point over and over.

In these difficult times, a council tax freeze is very good, but every council in the country is worried because of that one-off payment, as a number of hon. Members have pointed out. How do councils adapt to the situation in subsequent years? It would be wrong not to point out that that is a big concern.

A further concern that I have picked up from my local councils is that they feel they have coped with planning for the cuts that they have had to impose so far, but the uncertainty of next year gives them much less lead-in time for future planning. The Government must take on board the problems that councils face.

Like the Chairman of the Communities and Local Government Committee, I believe that ending ring-fencing is a good move. It is quite painful for local councils, but if we believe in localism, it must be the right thing. Moving towards the new system is right. We surely cannot defend the old system. Nobody understood the formula and it failed the test of time.

I hope that Communities and Local Government Ministers monitor the costs that are shunted on to local councils from other Departments. Examples include the 50% cut in community safety grant; the youth justice proposal that local authorities take youth offenders into care; and full recovery for court proceedings under the Children Act 2004. I could go on, but I shall conclude exactly on time.

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[Mr Kevan Jones (North Durham) (Lab)]

The hon. Member for Mid Dorset and North Poole (Annette Brooke) said that all councils start on the same basis, but that is the fundamental problem: they do not. What this Government are doing in the settlement—we also saw this last week, in the Local Government Finance Bill—is rewarding the councils that vote Conservative in the south of England. They are building that into the system, possibly for the next 10 years, because the proposed use of the 2012-13 grant as a baseline for 2013-14 will mean that injustice continuing in years to come.

What we are basically seeing is an unfair system in which councils in deprived areas—we have heard some examples today, such as Knowsley and others—are paying for more affluent areas, which is the reverse of redistribution. If we look at how the system has been designed, we see three reasons why that is happening. One is the abolition of council tax resource equalisation, which ran from 1993-94 to 2010-11. It took deprivation into account, placing councils on a level playing field, yet this Government have torn it up. We saw in last year’s adjustment a cut of £473 million and for the coming year a cut of £515 million. As my right hon. Friend the Member for Leeds Central (Hilary Benn) said, some have had a 15% cut in local government expenditure.

The Government are trying to give the impression to local councils and local people that it has nothing to do with them. Well, it is. Durham, for example, has had to take £125 million out of its budget. The idea that it is possible to do that by cutting the chief executive’s pay is nonsense; if he worked for nothing, it would not chip away much of that. It is all part of a well worked out strategy by the Secretary of State to shift the blame to local councils.

I spent nearly 11 years in local government, and there was not a single year in which we failed to look for efficiencies. Contrary to what Conservative Members say, most councils do that. The idea that they can be turned around in one year is absolute nonsense, as is the idea that it is possible to avoid front-line service cuts in County Durham by halving the chief executive’s pay or cutting down on the number of pot plants. For the Minister to claim from the Dispatch Box that these cuts can be made in councils like Durham without any effect on front-line services is absolute nonsense. No organisation, let alone a council, could take out such an amount—something like 23% of its budget—without it having any effect.

[Steve Rotheram]

My hon. Friend will be aware that Liverpool city council is one of the highest ranking in the indices of multiple deprivation, yet it suffered an 8.8% cut worth £91 million last year, it is having a £50 million cut this year and a £25 million cut next year. Can he understand the Minister’s argument that this new methodology will somehow make things fairer?

[Mr Jones]

Well, it will not make it fairer; it will make it more unfair. The Secretary of State knows exactly what he is doing politically; he is rewarding the people who vote Conservative.

The formula grant for children’s services is another element that puts pressure on councils in the north of England, especially if we look at the detail. That grant has been cut, and I have to tell the hon. Member for Mid Dorset and North Poole that the number of children in care in councils such as Middlesbrough is huge in comparison with the number in Dorset. The cut thus has a disproportionate effect on councils in County Durham and in other northern cities in comparison with councils in the hon. Lady’s area. Another issue is the damping mechanism. Nine out of 12 councils in the north-east lose out under that process.

I must take my hat off to the Secretary of State for his clever use of percentages when what we should really look at is cash. When cash is taken into account rather than percentages, we find councils like South Tyneside, Hartlepool and Middlesbrough losing money through the damping mechanism, so that they have to pay to help “deprived” areas like Windsor, Maidenhead, Richmond upon Thames and, my old favourite, Wokingham. Let us compare Hartlepool to Wokingham. Under the damping mechanism, Hartlepool pays to support Wokingham. Hartlepool faces a cut of £142, that is 5.7%, in spending per dwelling and then has to provide under the damping mechanism £5—0.2%—for every dwelling, which helps to protect Wokingham. Wokingham faces only a £27 cut per household, or 1.5%—only half what the Minister says is the average.

We heard it said in last week’s debates on the Local Government Finance Bill that the system is complex and that the Government are simplifying it, but they are not. They are putting in place a mechanism that will reward affluent areas. It takes away the one thing that equalisation did, which was to ensure there was a level playing field. That will no longer be the case under this system. Northern councils such as those mentioned in earlier examples are taking disproportionate cuts as well as having added costs in running their services because of high levels of unemployment, high numbers of individuals needing social care and the numbers of looked-after children. Those services place huge costs on those councils, which other councils do not have.

[Derek Twigg]

My hon. Friend is making a very good speech. Does he recall the Chancellor saying:

“We are all in this together. I am not going to balance the budget on the backs of the poor”?

As my hon. Friend has heard tonight in relation to Knowsley, Halton and other areas, that is exactly what the Chancellor is doing—he is hitting the most deprived areas the most.

[Mr Jones]

Exactly. We hear a lot of this nonsense and the soundbite that we are all in it together but we are not. The Government are protecting their own affluent areas at the expense of others. I think that under the Thatcher Government, Liverpool was written off at one time, and the current Government are clearly writing off certain areas.

The other alternative is to raise council tax. We heard earlier the new localisation of business rates being trumpeted as something that will bring in huge amounts of cash, but it is a damn sight easier to raise investment and to attract business to parts of the City of Westminster than it is to parts of Ashington in Northumberland or Seaham in Durham. The ability of councils to attract business will be limited, so the areas that will gain from that change will be those affluent councils. Similarly, the councils that will benefit from the changes regarding the new homes bonus will be those where house building is still going on. The house building market in the north-east is flatlining, thanks to the economic policies of this Government, and people are not building many new houses, so even those areas that have available sites are not going to gain.

Another issue is the ability of local councils to raise funding through council tax. In the north-east, 50% of properties are in band A, whereas the figure in Surrey is about 2%, so even if there were an equal council tax rise in both areas, Surrey would have a greater ability to raise large amounts of money than the north-east. The difference is quite stark. In addition, there is the problem that is coming down the road with the localisation of council tax benefit, which will come with a 10% cut. That is another cut for councils that have large numbers of people. My hon. Friend the Member for Warrington North (Helen Jones) has made the very good point, which I keep reiterating, that people on council tax benefit are not all on benefit; many of them are in low-paid work and they will be disproportionately affected by these proposals.

The Government know exactly what they are doing. They are devolving responsibility to local councils and with it devolving the blame. They are trying to give the impression to local people that they have nothing to do with the cuts that are coming in County Durham and other northern councils because of this mechanism, but they have. Only one person is responsible for this: the Secretary of State.

[Several hon. Members]

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