Kevin Hollinrake
Main Page: Kevin Hollinrake (Conservative - Thirsk and Malton)Local Government Finance Bill (First sitting)
Kevin Hollinrake Excerpts(7 years, 10 months ago)
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Rob Marris
Q But we will be discussing the Bill in Committee very shortly. Your answer is not encouraging, Minister. Will we receive the responses before the end of our sittings on the Bill?
Mr Jones: I can assure you that my intention is to bring those forward before the end of the Bill sittings.
Kevin Hollinrake (Thirsk and Malton) (Con)
Q On redistribution, I accept that the Bill gives local authorities the incentive to grow business rates, but the vast majority of income that will go to councils will be through a redistribution of the 100%, and that will be distributed according to need. The Local Government Finance Act 1988 stated that local authority funding for people should be fair, regardless of where they live. In London, local authorities have around 40% more spending power. If you add up all the local authorities of whatever tier divided by the number of people, the residents pay a lot less in council tax. Out of the total funding—business rates, revenue support grant or council tax—they have 40% more spending power, yet they contribute less in council tax. There does not seem to be any correlation in terms of need in those local authorities. That cannot be fair.
Mr Jones: I know this is a subject that you care about deeply, Mr Hollinrake. Quite rightly, at every opportunity available, you raise it with me and other Ministers in the Department. I understand that. The response to the call for evidence on the fair funding review conducted in the middle of last year will be released shortly. We will then look to introduce further consultation on fair funding. As you know, it will be complex. The way in which the needs assessment was put together more than 10 years ago means that there is significant complexity and we will have to look at the system very carefully, but we are alive to the fact that we need to bring that together with the fair funding review and the issues of redistribution by the time we get to implementing the outcome of the legislation in 2019-20. We are mindful of the fact that local authorities across the country have legitimately questioned whether the assessment of need is right, given the changes in demographic pressures and suchlike.
Kevin Hollinrake
Q I accept your points, but, as you say, it was revised 10 years ago and there is still an inbuilt unfairness in the system, which the LGA technical working group is looking at. Are we simply going to carry on and adjust it slightly? Are we going to accept regression as part of this and say it is just baked-in past formulas, rather than take a bold approach based on clear evidence and need? At the moment, 159 different measures go into the system, and it is not producing a fair outcome yet. I have no issue with any local authority or area getting more money than my local authority as long as it is demonstrably fair. We have got to get away from this opaque system and move to a fair system. We are using the LGA technical working group, but is there not some vested interest in there that will prevent this from being fair in the future?
Mr Jones: There are people involved in that working group from across the local government spectrum. They represent, for example, metropolitan councils, unitary areas, county areas, district areas and a geographical mix. The working group’s scope is deliberately set up to bring in all elements of local government so there can be a serious and proper discussion about this. As you know, Mr Hollinrake, the system is being introduced not directly thorough this legislation but through work that is happening alongside it. The Government are absolutely determined to ensure that there is a full and proper review of the situation to prevent things from being baked in or predetermined.
Kevin Hollinrake
Q The Communities and Local Government Committee recommended that there be an independent body to look at the issue, and we are bringing forward an independent analysis of funding. I am sure the Government will look at that very carefully and take it into account before they make a decision, but I seek reassurance about that.
Mr Jones: We are looking at the information that the LGA technical working group is providing, and I am sure we will also look at other pieces of work that have been done. As you know, Mr Hollinrake, in making our policy decisions, we always take into account things that the Select Committee puts forward and points out, as was the case recently when some amendments were made to Bob Blackman’s private Member’s Bill, which the Government supported.
Kevin Hollinrake
Q As part of this change to the system, another £12.5 billion of spending power is going back into local authorities, and I am sure you are going to want to see extra responsibilities commensurate with that kind of money. It is very difficult to change a system if there is no more money coming in—obviously there will be winners and losers, because it is a zero-sum game—but more money is coming in to deliver extra services. Do you think it would be fair if the local authorities that are getting an unfair deal at the moment get the greatest benefit from the extra money?
Mr Jones: That remains to be seen, but it is usual with any significant change to local government finance to have transitional measures. We will certainly need to consider that. As I said earlier, the Government have always set out our stall to make it clear that the £12.5 billion will be a revenue-neutral situation.
Mr Thomas
Q To follow on from that, there are clearly some in Whitehall who think that social care is now being properly funded and there is a package in place that will meet all the social care needs that have been identified. How would your two organisations respond to the idea that there is now a settled funding stream in place?
Councillor Nick Forbes: I do not know a single person in DCLG and I have not spoken to a single person in Whitehall who thinks that what we have for social care is anything other than a short-term temporary fix, which gets us through a few difficult months over this particular winter. There is clear acknowledgement—even the Secretary of State acknowledged this in the settlement—that there needs to be a longer-term solution for funding for social care. The LGA’s assessment is that there is a £2.6 billion shortfall in funding: £1.3 billion is required to stabilise the current system as it is at the moment and a further £1.3 billion is required by the end of the Parliament to deal with the cost pressures and demographic pressures that the system faces. It is very clear from the whole of local government—this is a cross-party view from within the LGA—that funding the social care problem is our top priority. So far, what we have had is something that gets us a few months further ahead but does not solve the problem into the long term.
Councillor Jon Collins: From the Core Cities’ point of view, every core city would take the view that funding for social care is very much in crisis and that the current arrangements just scratch the surface. If I may, I will just give you Nottingham as an example. Out of a net budget of about £260-odd million, something like £90 million is adult care. We have £11.2 million-worth of cost pressures, and that is wages, demography, additional inflation and charges from providers. The potential increase to council tax of 3% and the extra care funding we are to receive is about £5.8 million. So £5.6 million is unfunded pressures, which we will have to accommodate by making savings elsewhere in our budget, at a time when we are also seeing our revenue support grant going down from £56 million to £44 million. As you can see, the overall picture for an authority such as Nottingham—we are very typical of the core cities—is that this year’s approach helps a little bit, but that there is still massive pressure that is unfunded, and we expect the same next year. That is with an assumption that we will be increasing council tax by 5% overall.
Kevin Hollinrake
Q You have both mentioned that distribution, and assessment of need, are the keys to this. Your spending power for both your authorities is around 30% lower than some of the highest spending authorities in London, for example. Is the current system anywhere near fair?
Councillor Jon Collins: In a word, no. Spending power is an interesting way of looking at these things, but our spending power now, as a core city with major challenges in terms of deprivation, is lower than that of Rutland, which is another local authority in the east Midlands and largely covers a lake, a few sheep and a few large houses. It is a very unfair way of making judgments about relative impact of spending. Even for the next financial year, we are seeing a reduction in spending power of 1.5%, and Rutland is seeing a reduction of 0.6%. So there are major disparities—that is, if one assumes that spending power is a fair reflection of the spending needs of local authorities.
Four years ago, our revenue support grant was £126 million; next year it will be £44 million. That is the scale of funding reduction we are being faced with. We have had to make significant reductions in services in some areas. We have done other things, as most core cities have, to boost income, reconfigure services and work closely with others to make sure that we are commissioning in the most cost-effective and efficient way, which is a positive. Fundamentally, however, there has been a significant and dramatic effect on services.
Councillor Nick Forbes: One of the challenges is the currency that you use to describe the nature of the problem. It is easy to say that we have an unfair system if you look simply at a per capita rating—and that is one of the ways in which people compare different types of authorities. Spending power is another currency, and so is needs requirement. What there is not, across the system, is a settled view about which of those is the most appropriate to use. Inevitably, that gets you into the realm of which one is better for which political outcome. That is one of the reasons why there is concern about the way in which the business rates system works at the moment.
Kevin Hollinrake
Q In the current system, are you confident—which I suppose should be the case—that spending power per capita, or the total, or whatever, relates to need in that local authority area? Are you confident that that system works at the moment?
Councillor Nick Forbes: No, it does not.
Kevin Hollinrake
Q And are you part of the technical working group on the LGA that is looking at this review of how distribution occurs?
Councillor Nick Forbes: I am not a member of it, no—but there is a technical group within the LGA.
Kevin Hollinrake
Q Do you understand how the system works in terms of how it is distributed between different local authorities?
Councillor Nick Forbes: Does anyone know how the formula works? The other thing is that, in addition to the system being potentially unfair, it is also very inflexible. One of the challenges that every local authority faces is a system which, in effect, is set nationally and gives us no opportunity to vary things according to local circumstances. One of the things we are asking for within the LGA, as part of the Bill’s consideration, is flexibility for local government to be able to make changes—for example, if it has a sector that it wants to strengthen, or even if it has an area of deprivation where it wants to stimulate economic growth. As long as we can do that in a fiscally responsible way, it seems entirely sensible to allow local authorities to have those flexibilities, which currently we do not have, other than through the relief system.
Councillor Jon Collins: The formula is very complex. Relatively small changes to weightings can have a big impact in terms of the funding that local authorities get over time. The weightings have been changed very much away from need and deprivation towards per capita and sparsity. Of course, that then benefits counties and largely rural areas at the expense of large cities. That is why we can see a dramatic shift of resources to relatively well-off authorities in the south-east. Transition grant is another example: here is a £300 million pot of money to be spent over two years, none of it has gone to the core cities, 80% of it has gone to Conservative authorities, it has all gone to county councils, and there is no accountability over the formula by which it has been allocated. That is part of the funding package but while there is a little more clarity about how the criteria are applied elsewhere within the funding formula, the combination of the complexity and the lack of direct accountability for how the formula and the criteria impact on the funding for particular categories of authorities is problematic.
The Chair
Thank you. I know you wanted to ask another question, but in order that we can get everybody in in our limited time, can we please have short questions and shorter answers? You do not both need to answer if one agrees with the other.
Kevin Hollinrake
Q Councillor Borrow, you were talking about how unfair the current system is and about the need for a review. I think you also said that there will be winners and losers. I agree, as I think most people would. How do we cope with that? Your local authority’s spending power, for example, is around 35% less than some London authorities with much higher spending power. There are going to be winners and losers. Mr Ware is here wearing one hat; you are wearing another. How are we going to deal with that situation without it being a fudge that bakes in the current unfairness?
Councillor David Borrow: That goes back to the issue that the longer you allow unfairness to build in the system, when you try to bring fairness back, you have to put some sort of transitional arrangements in place. That ties in with the issue of council tax revaluation. I was told 40 years ago that you needed five-yearly revaluations. Otherwise, you end up with a situation like the one I was in when I worked down here: I was in a band E property in Preston and a band E property here, but I was paying less here than I was in Preston and the property down here was worth twice as much as the property in Preston, simply because the revaluation had never taken place.
Any property-based tax system needs to have regular revaluations. We had it for business rates, but we have not had it for domestic property. I understand the political realities of that, but if we are not going to have revaluation but we are going to have some fairer funding system, given the disparity that exists now between certain authorities—you’ve got people in a band D property paying £500 in parts of London and nearly £2,000 in another part of the country—you clearly have got to have some transitional arrangements to make that fair.
Guy Ware: It will not surprise you that I would also like to talk about that, and you will not be surprised to hear me say that I think we need to be very careful when we talk about London—I fall into the same trap sometimes—as an area of high spending power. London is a very huge and diverse city and economy. There are areas of London with the highest levels of deprivation and need of anywhere in the country.
Kevin Hollinrake
You have also got nine of the 10 authorities with the highest spending power in the country.
Kevin Hollinrake
Q This is evidence. And nine of the 10 lowest council tax charges in the country. I am not saying every local council in London—
Guy Ware: We also have nine of the 10 areas with the greatest multiple deprivation. The point that we need to get to is that there is a history behind that, as one of the previous questions suggested. The differences between neighbouring London boroughs can be as great in terms of spending power and tax as between some London boroughs and some authorities in other areas of the country.
One of the previous questions this morning was about the Independent Commission on Local Government Finance. One of the commission’s key recommendations was that the variations between authorities were at least as great within regions as they were between regions. As a result, it concluded and recommended that it would be possible and sensible to devise an approach that looked at regional funding needs, which would allow authorities within a region to deal with the distribution within that region.
Kevin Hollinrake
Q Councillor Borrow will disagree with that.
Guy Ware: That is something that we have been arguing strongly for from a London perspective. I am sure Councillor Borrow will want to come back on that.
Kevin Hollinrake
Q Can you answer my question? If you change a formula, there will be winners and losers. I absolutely subscribe to the view that that should be based on need and need alone—whether that means your local authority, mine, or anybody else’s is better-off—as long as it is transparent, clear and simple, so that we can all understand it. How do we deal with that situation?
Guy Ware: There are two issues. First, any change produces winners and losers and you need to make sure that the transition is not too sharp or painful. Secondly, however, a system that is based on need and need alone, while it might sound attractive, is actually directly contrary to the spirit of the Bill and Government policy, which is that the desire to introduce an element of incentives to the way in which local government is funded is seen to be important enough to pursue. The reason that it is important is that the amount of money available is not necessarily a fixed quantum. If you can generate more business activity and, therefore, more business rates, you can bring more money into the system.
Kevin Hollinrake
Q Sorry, we are short of time. I want Councillor Borrow to come back on that.
Councillor David Borrow: Darra Singh and his committee floated the idea of regional equalisation of the business rate. All that would do is reinforce the inequality between regions, and it is absolutely fundamental that if we are to get a fair local government finance system, you have equalisation across the country. From a mathematical point of view, you can argue that it is easier to do it on a regional basis, but that simply reinforces inequality. The dramatic, obvious example is between the south-east of England and the north-east of England—that would simply reinforce the poverty in the north-east and the affluence in the south-east. It is clearly not something that any Government should be looking to do.
Clive Efford
Q Mr Ware, following on from Mr Hollinrake’s questions, does not the capacity to raise income through fees and charges and to generate local economic activity—that is what we are talking about in business rates—need to be taken into consideration? Let me explain myself. I am from the borough of Greenwich, sitting on the outskirts of inner London, and I look in on Camden and Westminster, which can raise money through things such as parking charges, which enables them to finance local government expenditure in a way that other areas cannot. Is that not a major factor? You cannot take the face value of how much one local authority charges for council tax as a way of demonstrating its efficiency.
Guy Ware: It is clearly not a straightforward measure of the efficiency of the local authority or indeed its ability to raise resources in other ways, as you suggest. There clearly are differences between authorities. There are also a number of restrictions around the use to which such income can be put. Our approach in London Councils and the GLA has been to argue for the need to be able to look at London as a system as a whole. In order to make the success of the economy that I was talking about earlier continue, you cannot look purely at a borough-by-borough level, because the concentration of employment in the centre of the city means that that is where the majority of the jobs—not all of them, but a very large proportion—are going to be, but that is not where people are going to live. We need to think about how we can balance the contributions that various parts of the capital can make to its future success, and part of that will be the ability to invest in transport, to provide housing and to raise revenue through various types of resources.