Local Government Finance

Kris Hopkins Excerpts

Tuesday 10th February 2015 Commons Chamber

[Madam Deputy Speaker (Dame Dawn Primarolo)]

We now come to the two motions on local government finance, which are to be debated together.

Before I call the Minister to move the first motion, I have to inform the House that there is an error on the Order Paper, in that the two reports relating to local government finance appearing in item 3 on the Order Paper have been considered by the Select Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Kris Hopkins)]

I beg to move,

That the Local Government Finance Report (England) 2015–16 (HC 1013), which was laid before this House on 3 February, be approved.

[Madam Deputy Speaker]

With this we will consider the following:

That the Referendums Relating to Council Tax Increases (Principles) (England) Report 2015–16 (HC 1014), which was laid before this House on 3 February, be approved.

[Kris Hopkins]

On 18 December, I presented to the House a draft of the local government finance report, which set out our provisional settlement for local authorities in England for 2015-16, and began a period of consultation on our proposals. As I made clear to hon. Members then, we aim to deliver a settlement that is fair to all parts of the country, and that recognises the responsibility of local government to explore every opportunity for sensible savings. Every part of the public sector needs to do its bit to pay off the deficit left by the previous Administration. Local government, which accounts for a quarter of all public spending, must continue to play its part.

[Sir Greg Knight (East Yorkshire) (Con)]

During the Minister’s remarks, will he tell the House what the Government are doing to assist rural authorities? Will he also spell out what is being done to alleviate the burden generally of council tax?

[Kris Hopkins]

I assure my right hon. Friend that I will consider rural provision in my speech. Since coming to power in 2010, we have recognised that rural communities need additional support. I am sure he will see from the document I laid in the House on 3 February that we have responded appropriately.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

The Minister says he wants a settlement that is fair to all communities. He has himself recognised that the current settlement, notwithstanding the Government’s efforts, is not fair to rural communities. The central Government grant is 50% higher for urban communities than it is for rural communities, even though rural communities are on average poorer and have fewer services.

[Kris Hopkins]

My hon. Friend always makes a robust challenge to the figures we lay before the House, because he is passionate about supporting rural communities. When I get to the section on rural communities I will elaborate further.

[Mr Clive Betts (Sheffield South East) (Lab)]

The Minister says that local government has to bear its fair share of the cuts. Does he accept that according to the Office for Budget Responsibility—the Local Government Association produced these figures for us—if we exclude spending on schools and public health, which local authorities cannot affect, in 2009-10 local authorities represented 19% of public expenditure? By 2015-16, it will represent 16%. In other words, local government has surely borne more than its fair share of cuts. It has had more cuts as a percentage than the rest of central Government services.

[Kris Hopkins]

I do not have those figures, but what I will say is that I recognise that local government has had to make a substantial contribution to driving down the deficit left by the previous Administration. It is important that we recognise that local government has responded in an extremely positive way to the challenge we have placed before it.

During the consultation period, which closed on 15 January, my ministerial colleagues and I met a number of local authorities and representative groups. I also led a phone-in discussion, with more than 100 authorities participating. In addition, the consultation received numerous written responses. We considered very carefully the views of all those who commented on the provisional settlement. On 3 February, we laid before the House a local government finance report which confirmed our proposal for the settlement for 2015-16 as announced. We also confirmed our proposal that the council tax referendum principle for 2015-16 will be set at 2%.

I recognise the time and effort that those responding to the consultation—councils, in particular—have given in submitting detailed and considered comments on our proposals. As I said, we listened to those views carefully. In doing so, we recognised that councils asked for additional support. As a result, our announcement on the final settlement for 2015-16 included provision for a further £74 million to support upper-tier authorities, including to help them to respond to local welfare needs and improve social care provision.

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

If the Minister listened carefully to representations and wanted to be fair, how can the outcome be that Liverpool, the most deprived local authority in the country, is suffering some of the harshest cuts?

[Kris Hopkins]

We need to recognise—I have said this before—that the 10% most deprived authorities receive on average 40% more than the most wealthy authorities. It is right that we create a formula to ensure the more vulnerable and deprived areas get that response, but we should not just measure on the basis of what moneys have been allocated. Local authorities now have the ability to raise money and are rewarded for building houses. I would also point out that the growth deals associated with Liverpool are significant and are led by local leaders.

With the addition of these extra resources, the overall reduction in local authority spending power in 2015-16 is 1.7%. That is lower than that proposed in our provisional settlement. Taking into account the funds we are providing to support local transformation, the overall reduction is still lower, at 1.5%. Once again, the settlement ensures that councils facing the highest demand for services will continue to receive substantially more funding, and we continue to ensure that no council will face a loss of more than 6.4% in spending power in 2015-16.

[John Healey (Wentworth and Dearne) (Lab)]

Does the Minister accept that spending power disguises the real pressure on many councils, and that the money allocated does matter? Barnsley, which covers part of my constituency, is facing eye-watering cuts: a 26.9% cut in the revenue support grant next year, it tells me, and an overall cut in its settlement of 13.6%. It is absolutely nothing like the smaller figures he is giving the House.

[Kris Hopkins]

I hope, then, that the right hon. Gentleman has apologised to his constituents for the financial nightmare this country faced in 2010. The Government are not making these decisions out of a desire to reduce funding for the sake of it; we are responding to the appalling economy that Labour left.

[Mr John Redwood (Wokingham) (Con)]

Can the Minister comment on the balance in his settlement between the money that goes directly in the block grant and the money that goes for special purposes and as a reward for certain kinds of conduct? How is that developing, and what difference does it make to the percentage change?

[Kris Hopkins]

I hope my right hon. Friend will forgive me; I cannot give him the percentage change, but I can give him some clear figures. For example, business rate retention by local authorities alone is some £11 billion, and as the Prime Minister said this morning, should a Conservative Administration be returned at the forthcoming general election, we would hope to increase that to two thirds.

Through consecutive settlements, we have ensured that these unavoidable changes to local authority funding have been applied in a fair and sustainable way, and through our reforms to local government finance we have established a basis for more self-reliant government—a sector less dependent on grant and increasingly confident about using the tools and incentives we are providing to grow their local economies.

[Dame Angela Watkinson (Hornchurch and Upminster) (Con)]

The low level of private rents in the London borough of Havering has given rise to a surge in demand, particularly for children’s services. The local population is already top heavy with older people and all the demands that come with that. How might the funding formula respond more to individual boroughs with particular difficulties?

[Kris Hopkins]

The key thing about the choices that we have placed before local government is just that—local authorities can determine where money is spent. We appreciate that there is less money to spend as a consequence of the previous Administration’s activities, but it is right that people can make choices, set their priorities and—in this case—choose to look after very vulnerable individuals.

As well as growing their economies, the best authorities are transforming how they do business and demonstrating innovation, including in how they work with local partners. We are supporting them as they do that, helping them to achieve savings and, perhaps most importantly, improving outcomes for people who use local services. As I announced in December, we are developing proposals for a project to identify and disseminate good practice in transforming services, especially in rural areas. This work will involve rural authorities and the Rural Services Network, and is a clear commitment to our rural areas.

[Mr Jim Cunningham (Coventry South) (Lab)]

The hon. Member for Hornchurch and Upminster (Dame Angela Watkinson) mentioned demand for children’s services. In Coventry, we have to find an additional £7 million for children’s services. More importantly, we have to cut services across the board, because there has been a cut from the Government of £80 million, or 2,000 jobs, in general terms. What will the Minister do about that? He cannot go on blaming the previous Government. The coalition is in government now. There is no choice here, and that is being reflected in local government up and down the country. Local government is becoming a whipping boy for this Government, as it was for previous Conservative Governments.

[Kris Hopkins]

I am not moving away from the fact that there was a huge deficit in 2010, which this Government or whoever come to power after the May election will have to continue to address. The hon. Gentleman says that we keep on going back to local government. I have not seen anything from the Opposition to suggest that they will do anything but continue to bear down on spending on local government, because they will have to address the issues of concern. We have given local government the opportunity to grow resources by promoting and developing business, by securing planning permission and building the houses required for the local populace. That is the right thing to do.

[Several hon. Members]

rose—

[Kris Hopkins]

I shall give way in a few moments.

We continue to recognise the challenges faced by rural communities. Through consecutive settlements, we have helped address the gap in urban/rural spending power. We expect the gap to continue to close. In the meantime, the settlement confirms another year of additional resources for the most rural authorities to recognise the challenges they face in delivering services. For 2015-16, in direct response to Members of all parties, we have increased the grant to £15.5 million.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Does the Minister recognise the challenges faced by London, whose population is on the increase? The population of my own borough, the London borough of Enfield, will increase by 10% up to 2020, putting enormous strain on services, not least on children’s school places. What recognition has the Minister given to that population increase, and will he include it in the baselines so that it is reflected in the grant settlement?

[Kris Hopkins]

What I recognise is that London is a great international city, which has thrived under this Administration, and will continue to deliver significant jobs, wealth and income to the individuals out there. That is the root issue. Many Labour Members stick their hands out and ask for more money; the reality is that this Government are setting about ensuring that we grow our economy, get people into work and give them the ability to stand on—[Interruption.]

[Several hon. Members]

rose—

[Kris Hopkins]

Let me make a bit more progress.

The Government previously consulted on a range of options for how local welfare provisions for the upper-tier local authorities should be funded in 2015-16, following localisation. The Department for Work and Pensions carried out a review, and the Government concluded that local authorities should continue to be able to offer local welfare assistance from existing budgets in 2015-16, alongside a range of other services if they judge them to be a priority in their area. To assist in identifying how much of their existing funding is involved, an amount relating to local welfare provision was separately identified in each upper-tier authority general grant as part of the provisional settlement. This totalled about £130 million nationally, and was distributed in line with local welfare provision funding for 2014-15. The Government have always been clear that councils should choose how best to support local welfare needs, so this allocation cannot be ring-fenced and we will not place any new duties, expectations or monitoring requirements on its use.

[Sir Edward Garnier (Harborough) (Con)]

My hon. Friend is generous in giving way this afternoon. Harborough district council area covers about a quarter of the geographical area of the county of Leicestershire. It follows that it is a large rural area, with all the sparsity factors that go with it. The district council is Conservative run and it is doing its best to ensure that taxpayers’ money is wisely spent. If I may say so, it has behaved extremely well in ensuring that both the Government’s policies and its own policies are bearing fruit. However, will my hon. Friend bear in mind that there is a perception of a distinction being made between rural funding and city funding, particularly for the city of Leicester in comparison with my area, so will he do all he can to help me explain to my constituents that this Government mean what they say—that they have not forgotten their rural heartlands?

[Kris Hopkins]

Members have asked for a clear direction of travel in relation to our incremental increases in rural additional funding. I think it is clear that we have done our best to provide those increases during our time in office, given the limited resources that are available to us, but let me repeat an offer that I have already made: I shall be happy to meet my hon. and learned Friend and members of his council to discuss how we can communicate better what we are trying to do.

In response to the representations that we received during the consultation, we have decided to allocate an additional £74 million to upper-tier authorities to help them to deal with pressures on local welfare, health and social care. That will help councils further as they develop localised arrangements.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Will the Minister acknowledge the warnings issued by the Local Government Association about the cumulative impact of a 40% cut in local government funding? Does he accept that many authorities, including Brighton, are struggling to provide services? Is not the truth that this Government do not care about the future of local government as we know it?

[Kris Hopkins]

I suggest that one of the reasons Brighton council is struggling is its poor leadership. Moreover, the figure given by the hon. Lady clearly does not include significant amounts of public money, including money from the better care fund. Some £5.3 billion appears to be missing from the LGA’s calculation.

That £74 million will be topped up with £37 million of additional funding for local authorities during the current year. That extra money will ensure that councils can step up their efforts to get people home as soon as they are ready to leave hospital, and avoid the need for people to go into hospital in the first place. It will help to promote joint working between our local public services, and will improve front-line services for some of the most vulnerable people in our communities.

[Mr Graham Stuart]

Will the money be distributed in a way that is proportionate to the number of over-65s in local populations? As my hon. Friend will know, rural communities typically contain older, more vulnerable residents than their urban counterparts.

[Kris Hopkins]

Although I live in a large metropolitan district, I also represent a significant rural area, and I know that many single elderly people live in large houses. That is another form of deprivation, in that they must sustain those houses on limited and fixed incomes.

1 urge all councils to protect taxpayers this year by taking the additional Government funding that is on offer for a freeze. That will enable them to help hard-working households and those on fixed incomes, such as pensioners, with their living costs. The tax-freeze grant will be embedded in councils’ baseline funding. Five successive years of freeze funding have seen council tax in England fall by 11% in real terms since 2010, after being doubled by the last Administration. Our actions will save for the average Band D household up to £1,075 over the course of this Parliament.

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

I welcome the extra funds that will help people to be moved from hospital into the community or to other forms of care, but what is the rationale for ring-fencing that pot of money and not ring-fencing the local welfare assistance money?

[Kris Hopkins]

The additional £37 million is specifically to address some of the winter pressures we face. We wanted to make sure that local councils work with authorities to address the particular needs of those individuals we wanted to help move into appropriate accommodation, and make sure there was sufficient and appropriate domiciliary care to look after them. That is why it is targeted around that group.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

The Minister asserted that the settlement was both fair and sustainable, and I want to address the word “sustainable.” On the current trajectory, by 2018 Birmingham will have lost, using 2010 as a baseline, £821 million. That is two thirds of its discretionary spending. By any definition, that is not sustainable.

[Kris Hopkins]

I have a lot of respect for the hon. Lady, but I am afraid that poor leadership in Birmingham and the fact that it has not collected some £100 million in council tax arrears may explain some of the issues it is facing. Stronger leadership and the ability to carry out the simple function of placing a charge on an individual and collecting it will assist it.

[Robert Neill (Bromley and Chislehurst) (Con)]

Does my hon. Friend agree that the real way to achieve proper sustainability for local government funding is to reward those councils who go for growth in their area and increase their tax bases—as we are seeing with the increase in business rates income anticipated this year—and make councils less dependent on central Government grant in the long term?

[Kris Hopkins]

My hon. Friend speaks very wisely and he knows from his own experience that local authorities appreciate these tools we have given them to grow their finance base, and there is an incentive for them to carry this out by improving those key services and increasing the resources to those services.

For those who do not freeze the council tax, the referendums principles report laid before the House on 3 February confirms that any increase of 2% or more will require a binding referendum by the local electorate. Councils that want to increase their bills should have the courage of their convictions and seek a mandate from their electorate. It is already the case that a council tax referendum can be held at a reduced cost in 2015-16 when combined with the general election. We announced on 3 February that any savings to the Consolidated Fund as a result of a combination of a referendum with the general election will be redirected to councils, so the cost of the referendum to a local authority is low. This weakens the argument that some might make that holding a local referendum will result in excessive cost.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I have no doubt the Minister will want to congratulate Hammersmith and Fulham council, which is one of eight to cut its council tax this year, but why is he rewarding it by cutting its discretionary housing payment not by 24%, which is the national average, or 35%, which is the figure for London, but by 52%? This is an area with the highest property prices and where there is family break-up with people being forced out of the area. DHP is absolutely vital. Will he look again at that cut?

[Kris Hopkins]

This Government continue to ensure there is a substantial welfare net to look after the most vulnerable individuals, and we have put additional funding into the budget. I applaud the council for reducing its council tax, however, and I would just note that it is following the trajectory given by the previous Conservative administration. That may be only a small glimmer of light, but somebody appears to have learned from the excellent previous Conservative administration.

The local government finance report 2015-16 sets out a fair settlement, which ensures councils continue to have significant spending power. Even with the savings that have been made to date, local authorities in England were expected to spend over £115 billion in the current financial year. When we factor in councils’ new responsibilities for public health, the amount local government are expected to spend is higher than it was under the last Administration.

[Mr Love]

My local authority, the London borough of Enfield, is the 64th most deprived in the country, but its ability to deal with the problems of need is hampered by the long-term impact of the damping formula. I understand what the Minister said earlier about the need for floors, but can he offer any support to those local authorities struggling to address the needs of their boroughs because of capping over a long period?

[Kris Hopkins]

There are two things. First, there is not a cap; there is an opportunity for people to increase their council tax, and if councils believe that their public would support them, they may hold a referendum. Secondly, I go back to a point that I made earlier about the success of individuals. The route out of poverty and deprivation for an area such as my former council area of Bradford involves getting people skilled up, with local councils supporting them, and those individuals getting a job and being able to stand on their own feet. Breaking the cycle for an individual trapped in one has to be the responsibility of both central and local government.

The referendum principles report sets a sensible threshold for council tax increases, unless local people are happy to approve something else through a referendum. It is more important than ever that councils can demonstrate to local taxpayers that they are using every pound of their money to best effect to deliver efficient and effective services and to achieve sensible savings.

[Hilary Benn (Leeds Central) (Lab)]

That was an interesting speech. I pay tribute to the Minister for his generosity in giving way to Members, but councillors up and down the country listening to what we have just heard—in particular the part where he talked about giving authorities the ability to grow their resources—will look at their circumstances today and ask whether the Minister really understands what is going on in our authorities.

I want to begin with the scale of what is happening, because the Minister queried the figure given by the hon. Member for Brighton, Pavilion (Caroline Lucas), which was the Local Government Association’s calculation of a 40% reduction in core Government funding to councils since 2010, as a result of which councils have had to make reductions or savings worth about £20 billion. Would the Minister argue, however, with the National Audit Office, which said in its report “Financial sustainability of local authorities 2014”:

“The government will reduce its funding to local authorities by 37% in real terms between 2010-11 and 2015-16”?

[Kris Hopkins]

I would disagree, because neither the LGA nor the NAO includes the money for public health or the better care fund.

[Hilary Benn]

I shall come to that point directly, but the Minister did not actually contest the NAO figure. The reduction in resources of 1.7% that he has talked about today is a selective figure, because it does indeed include council tax, the better care fund and other ring-fenced funding, but if that is excluded the LGA says that the reduction is actually 8.5%. Whatever the statistics that the Minister wants to argue about, the truth is that local government has faced the biggest reductions in the whole of the public sector, as we heard in an intervention.

We should first pay tribute to councils for the extraordinary job that they have done—councils up and down the country, of all political parties—in trying to deal with the consequences of the cuts, because their effort has been herculean. I pay tribute to the Minister for his tone, which is slightly different from that of his predecessors, but councils really resented the Secretary of State once famously describing the cuts as “modest”—which I bet he now regrets—and the LGA’s fears for the future of local government as “utterly ludicrous”.