Local Government Finance

Kevin Hollinrake Excerpts

Wednesday 5th February 2025 Commons Chamber

[Kevin Hollinrake (Thirsk and Malton) (Con)]

May I first put on record my admiration for the fine work of councils, councillors and officers right across the country? That work is often carried out at the most challenging times against a backdrop of real financial pressures on those local authorities, not least the rising demand for adult social care, special educational needs, temporary accommodation and others. I do not think there was ever a time when we appreciated councils more than during the covid crisis—as well as during the cost of living crisis—when we saw the fine work they did and how important it is to have those councils and councillors helping local people.

I welcome the extra money provided in the spending review—a 6.8% increase in core spending power. I welcome the approach that the Minister intends to take with the multi-year settlement. That is a sensible way forward. I also put on record my respect and admiration for the Minister. He always takes a considered and responsible approach and has huge knowledge of the sector. I promise him that we will work across parties wherever we can on the things we agree on to try and make it easier for local councils to do the fine work that they do.

[Andy McDonald (Middlesbrough and Thornaby East) (Lab)]

The shadow Minister is generous in giving way. He quite correctly praises councillors. Does he think, as we move forward with the changes, that it would not be a bad idea to start thinking about how we compensate councillors for their efforts? Many of them give up so many hours of their week and do vital work for very little by way of recompense. Does he agree that we should look at that?

[Kevin Hollinrake]

I can only reiterate what the hon. Gentleman has said and what I said earlier: they do fine work and most do not do it for money but because they have the interests of their local communities at heart. That should always be the case, and those are the kind of councillors that we want. Where people have expenses to do their jobs, that needs to be properly compensated for.

Will the Minister accept that the majority of the extra money provided through the settlement is raised through council tax increases, which are effectively taxes on local taxpayers—that is, working people? As he is sensible and considered, does he regret the fact that the Prime Minister stood on a stage in Swindon on 30 March 2023 with the Deputy Prime Minister, who is also the Secretary of State for Housing, Communities and Local Government, stating that he would freeze council tax for the first year they were in Government? That has not been the case. The Prime Minister quite clearly promised

“a tax cut for the 99 per cent of working people who are facing a rise in their council tax”.

His words were also that there would be

“not one penny on your council tax”.

We said then that those promises were not worth the paper they were written on. How right we were.

Under Labour, typical council tax bills are to rise by 5% in April 2025, in another increased tax on working people. That means that the average household faces an above-inflation increase of around £100 in their council tax bills in that year. All that will do in many cases is fill the black hole in council finances that Labour is creating due to an increase in national insurance contributions. Furthermore, it is quite clear that Labour is deliberately funding largely Labour-led urban areas at the expense of rural areas.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

I thank the hon. Gentleman for giving way. He is one of the more reasonable of his party’s Front Benchers—not that he needs my praise.

Between 2010 and 2024, Stoke-on-Trent city council had a cumulative loss of £411 million. In cash terms, if the budget had been frozen and there had been no increases, we would have had that much more in spend. Does the shadow Minister accept that the damage that his party did in local government cannot simply be fixed in one settlement after seven months of a Labour Government?

[Kevin Hollinrake]

I have spoken before about the financial pressures all councils are under. That is principally due to rising demand on services; that is the reality. Eighty per cent of discretionary spend is on the three areas I referred to earlier. There is no doubt that there are challenging circumstances. Nevertheless, the vast majority of money raised through the settlement is through council tax, and much of the money raised for core spending power will go on national insurance rises. There are direct costs, but there are also indirect costs that are not covered. Many councils will be worse off as a result.

[Jim McMahon]

Just to be clear, even rural councils will receive a near 6% increase in their core spending power. It is correct that £600 million through the recovery grant is targeted at deprived communities, but we have followed an assessment of need right through the system, including that of rural authorities. The hon. Member must welcome that.

[Kevin Hollinrake]

I will come on to that, but we do have a different perspective. The point that I am making principally right now is that there are rising costs on councils, both in direct costs through national insurance and through indirect costs, which are not fully covered by this settlement, and I think the Minister accepted that fact earlier in his remarks.

The reality is that rural areas will face higher council tax increases to make up for reduced central funding, despite the cost increases of providing services in rural areas. To give the House an easy example of this, my local authority, North Yorkshire council, spends more on school transport than it does on the whole of children’s social care. That is the cost of delivering services in rural areas. Despite that, the Labour Government have chosen to scrap the rural services delivery grant. They have said that they are repurposing it, but it is now clear that this has not been repurposed to support rural areas in the way that the delivery grant used to do, despite the higher cost of service delivery in those areas.

The chairman of the County Councils Network, Tim Oliver, has warned that rural areas will lose hundreds of millions of pounds due to Labour prioritising urban areas over rural ones in the way that it distributes funds. The Government are moving distribution away from a needs-based formula to one based on deprivation. He has warned that Labour’s funding formula will mean that rural councils would lose an estimated £190 million in a single year. He has also stated that, when taking into account the moneys needed to cover the costs of the national insurance increases, this is the worst settlement for county councils in four years.

[Mr Betts]

Can the shadow Secretary of State just explain his comments? I agree with my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) that the hon. Gentleman one of the more reasonable Members on the Conservative Benches. He said that the Government are switching money away from a needs-based formula to one based on deprivation. Is not deprivation very clear evidence of needs in the community? What is the difference?

[Kevin Hollinrake]

Of course there are some needs around deprivation, but that is not the entirety. The major cost drivers for local authorities are the things that I outlined earlier: adult social care, special educational needs and temporary accommodation. There may be some crossover, but the reality is that simply basing that on deprivation will not work for all authorities; some will be worse off as a result of moving from need to deprivation.

[Natasha Irons]

I had hoped that we could move away from this pitting area against area. I can assure the shadow Secretary of State that I am from an urban area with high deprivation, but with very high transport costs for children to get to special educational needs placements, and also massive temporary accommodation costs. Perhaps we need to move towards a better model that takes in all the issues we face in all of our areas. In that way, we are not fighting each other, but working together to get better local councils across the country.

[Kevin Hollinrake]

I do not want to be party political, but it is not us who are changing the formula. The reality is that this Labour Government are robbing Peter to pay Paul. This is a zero-sum game. If they move the formula around, some councils will be worse off and some will be better off. I want everybody to be treated fairly, but this is a very difficult situation against the current spending round.

The Labour Government’s approach is particularly worrying given their intention to move to a new fairer funding formula. “Fairer to whom?” we might ask, given the point we have just made. Labour’s broken promises on this are clear and follow similar promises broken on the fully costed and fully funded manifesto: the family farm tax, the family business tax, the winter fuel allowance, the rise in employer national insurance contributions and, of course, that statement about “not one penny more on your council tax,”

[Andy McDonald]

We were doing so well. We were talking about fairness across the board and not pitting one against the other—so far, so good. But given the shadow Minister’s comment, may I just remind him of the words of the former Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), in the garden in Tunbridge Wells, where, when talking about his time as Chancellor of the Exchequer, he mentioned having transferred funds deliberately away from deprived and challenged areas to more affluent ones? Surely we have to call out the record correctly, and if we want a fresh start, let us have a fresh start.

[Kevin Hollinrake]

I think my right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak) was talking about fairness, which we all believe in. The hon. Member for Middlesbrough and Thornaby East (Andy McDonald) will have a different perspective on fairness from other people. The reality is that there is a political division here. One thing that we must agree on is that the statutory duties on councils should be properly funded. My concern is that that will not be the case, and lots of those pressures fall differently on rural councils compared with urban councils.

[Gareth Snell]

Under the formula that has been proposed and on which we will vote this evening, Stoke-on-Trent city council will receive a recovery grant of £8.2 million. I hope that the shadow Minister is not saying that, were the Conservative party still in Government, we would not receive that additional cash, and would therefore be £8.2 million worse off.

[Kevin Hollinrake]

It is interesting, because the loss of the rural service delivery grant cost my local authority £14 million, so it depends where we draw the line and what the priorities are. The change in the rural services delivery grant is robbing Peter to pay Paul. That is the reality.

[Luke Akehurst (North Durham) (Lab)]

My residents in North Durham are in a local authority area, County Durham, that is rural and deprived. I assure the shadow Minister that the previous version of the formulas was not designed to help that kind of rural authority. It may have helped wealthy rural authorities, but it did not help areas that suffered from both the difficulty of providing services in a rural area and the extreme need caused by deprivation.

[Kevin Hollinrake]

We all have different views on this matter. Many parts of my constituency are not wealthy and have deprivation that is not sufficiently catered for by some of the formulas. That is what we are concerned about. We are keen to see fairness across the board, so we will scrutinise Labour’s plans very carefully on that basis.

The Labour Budget promised a big increase in council spending and the return of the sector to sustainability through a comprehensive set of measures to support local authorities in England. As I said, the Government also promised multi-year settlements, and we support those intentions. However, most of the money provided to local councils under the settlement will be through council tax rises for working people. A number of the rises breach the 5% referendum limit principle. Referendums on council tax rises of up to 9.9% have been waived by the Secretary of State, so local people cannot have a say on these dramatic increases. That means that local residents in the Windsor and Maidenhead borough, Birmingham, Bradford and Newham all face increases of more than 5%. Birmingham is notable due to the mess that Labour made there, which Labour is now forcing residents to pay for, rather than taking responsibility. The Liberal Democrats are also raising council tax without allowing Windsor and Maidenhead borough and Somerset residents a say on how they feel about the increases.

Council tax rises make up the bulk of the settlement, and rather than Labour delivering on its claims that it would fairly fund local government, it is pushing the burden on to taxpayers. The Government have also increased that burden with their jobs tax, which will negatively increase costs on local government finance. Although they have provided £515 million to cover the direct costs of employer’s NI, the Local Government Association has estimated that the national insurance contribution hike will cost another £1.13 billion for increases being forced upon providers of outsourced services.

The costs of those outsourced services will inevitably increase, but the Government are providing no money to cover that. Councils and residents will have to pick up the bill. Council tax receipts in 2025-26 are forecast to be in the order of £50 billion, yet Labour’s nonsensical Chagos islands deal is rumoured to cost up to £18 billion. That is equivalent to a one-off £820 deduction from a typical council tax bill. Alternatively, it could have paid for a council tax freeze for the whole of this Parliament. As with all things, Labour is wasting taxpayers’ money rather than giving them a tax cut.

The settlement will make it more difficult for councils to deliver on residents’ priorities, be they social care or potholes, which I note Conservative councils have a better record of filling in. It is an undeniable fact that Labour and the Liberal Democrats deliver worse services and charge more. From Whitehall to town hall, under Labour, people pay more and get less.

[Madam Deputy Speaker (Caroline Nokes)]

I call the Chair of the Housing, Communities and Local Government Committee.