Local Government: Finance Settlement

Lord Beecham Excerpts

Thursday 17th January 2013 Lords Chamber

[Lord Beecham]

My Lords, last week the Government published their mid-term review. It was not so much a candid assessment of their first two-and a-half years as a Candide assessment, where everything is for the best in the best of all possible worlds. We read in the document that the “shared instinct for decentralisation” on the part of Tories and Lib Dems has apparently become “an organising principle”, with,

“an historic shift of power ... to put our counties, cities and citizens … in control of their own affairs”,

with,

“sweeping reforms to increase local authority freedom,

and,

“the ability for councils to finance themselves independently through retaining 50 per cent of the business rate”.

The latter, of course, is determined by the Government. Yet Eric Pickles was the first Cabinet Minister to offer up cuts, in his case of 30%, to the Chancellor after the election—nearly four times the scale of cuts suffered by other central government departments. He continues to preside over a massive reduction in resources on a scale unprecedented even by the standards of the Thatcher years. Characteristically the finance statement and its accompanying documents were riddled with inaccuracies, so that the website had to be taken down after representations from council treasurers. Equally characteristically, the Secretary of State not only underestimates the scale of next year’s cuts, he said next to nothing about the even bigger cuts to follow in 2014-15, which for many authorities are likely to be in the region of 7% to 8%. Perhaps he had in mind consideration of the forthcoming county council elections. The pain would to some degree therefore be deferred until the following year.

The Government seem determined to move inexorably away from a needs-based system which, for all its unevenness, at least sought to address the disparities between more and less prosperous areas, to one based on crude numbers. However, there are matters of general application and I will return later to the issue of distribution. These are matters which have occasioned profound concern across the local government family and the political divide within it. For example, the Local Government Association—yet again I declare my interest as an honorary vice-president and as a member of Newcastle City Council—draws attention to what is a real cash cut in services for all councils so that a few might be permitted to capitalise up to £100 million of redundancy costs from capital receipts or borrowing. No proper explanation has been given for this cut, apparently made for “accounting reasons”. Perhaps the Minister will give us the reason—if not today, then subsequently. Perhaps he will also explain where the £100 million of local government cash has gone.

Similarly, as the noble Lord, Lord Tope, has pointed out, many councils will face problems over rating appeals, many going back several years. It would appear that they face the risk of having to fund 50% of the backdated costs of successful appeals, even though the money will already have been paid into the national pool. That risk should ideally stay with DCLG. I understand that the department is providing funding to cover this for a period, but what are the Government doing to secure the expediting of hearing appeals by the Valuation Office? I illustrate the problem by referring to my own authority, where there are outstanding appeals against the valuations on the 2005 basis on 100 properties with a rateable value of £30 million—that is just for one local authority—and the DWP has made the largest claim, which goes back over six years. What action will be taken to deal with that?

There are other common issues, for example a further cut of 30% nationally in core services such as childcare, cuts in support for concessionary travel, and youth and education services, and the holdback of £150 million of early intervention grant which also comes with a 28% reduction compared to the present year. In addition to these significant issues there are huge problems around issues of distribution. It is here that the seismic shift from a needs-based approach would be most keenly felt. This is not a simple north/south issue. Inner London boroughs, coastal towns such as Great Yarmouth and other communities—some urban, some rural—with significant economic and social problems in different parts of the country all suffer, although if you look at the regional map, there are marked regional differences.

Consider the new homes bonus, largely financed by top-slicing money which would have come to local government anyway—a fact often forgotten. The effect is to divert resources from the less prosperous areas to the more prosperous, where the housing market is more buoyant. Newcastle will admittedly benefit from the bonus, to the extent of a little over £3 million. The problem is, we lose nearly £6.5 million as our share of the top-slice grant, so we are nearly £3.5 million worse off, despite making significant efforts under councils of both political persuasions to facilitate new homes building. Note too the perverse effect of the damping regime, which funnels moneys from authorities losing significantly more spending power per head than some of those who receive it. I referred in a previous debate to the £40 million that Surrey received last year, which went straight into its reserves. This apparently will increase to £63 million next year and will be built into the base thereafter.

Next year Wokingham, which Ministers perversely cite as a comparator to Newcastle—although I have not heard the noble Baroness do that yet—will receive £204 funding per dwelling in damping grant. That is three times the amount for Newcastle, which has had much larger grant cuts per dwelling in recent years. This comparison is wholly invalid. The Government have cited a difference in spending power—that is to say council tax, business rate and grant—of £700 per dwelling, but half of that is due to the higher costs of adult and social care in a much poorer and less healthy population, one-sixth to council tax support, another sixth to grant for homelessness, £95 of the £700 for children’s social care—and we have proportionately four times as many children in our care as Wokingham.

The Minister recently wrote to my noble friend Lord McKenzie with some information about the Social Fund allocations. It is very illuminating, because it emerges that the Social Fund allocation to Newcastle, which must surely be a critical measure of deprivation, is 15 times the size of that for Wokingham. Even allowing for some adjustment for population there clearly is a huge disparity in need, yet the current system does not reflect it and is decreasingly reflecting that. It wholly invalidates the comparisons that Ministers are drawing.

Another instance is the funding for concessionary travel. We receive four times Wokingham’s funding for that but our costs are nine times greater. What is true of Newcastle is true of much of the north-east and other hard-pressed regions. The north-east as a whole will lose £275 million under the new homes bonus schemes by 2018. There are real concerns about a cut in resource equalisation and the 30% cut in support for looked-after children, where the numbers and costs are increasing by 26% in the north-east compared with 10% nationally—a function of the region’s economic plight.

In Northumberland, a county with the second longest road mileage in the country, apparently with the same area as Cyprus and much of it exposed to extremes of bad weather, government funding for highway repairs will fall by more than 40% by 2014. My city faces a yawning gap of £100 million a year by 2015-16 on a current net budget of £266 million. The closure of the gap will require cuts of unprecedented magnitude. In the ward that I represent, which is among the 10% most deprived wards in the country, we expect there to be the closure of community buildings and a playcentre, and a reduction in standards of maintenance of open space, before one takes into account the significant loss of income that many constituents will incur as a result of the benefits changes. Other councils in the region face similarly appalling prospects as the relative needs assessment reduces by £573 million, compared with an increase in the central share of £871 million—and that is just for next year.

What does the Secretary of State have to offer? Fifty shades of Pickles, it seems. He provides a patronising list of possible savings, from the stultifyingly banal, such as not providing mineral water for council meetings, to the patently obvious, such as increasing council tax collection—although that will not be easy in light of the council tax benefit cuts. It will become uneconomic to collect tiny amounts from people who can barely afford to pay and who did not have to pay in the past. I say nothing about the bill for biscuits in the Department for Communities and Local Government, which apparently increased by £10,000 last year. The Secretary of State ignores local government’s record in driving through efficiencies for many years—to which the noble Lord, Lord Tope, referred—leading the way for the public sector, just as he ignores the damage to local services and the communities they serve in the damage this Government are wilfully inflicting, especially on those areas and their people who can least bear it.

My noble friend Lord Smith and the noble Lord, Lord Tope, referred to public service reform. It is right that councils should do more to collaborate and make savings, not merely among themselves but across the whole public sector. I recently asked a Question about that. I look for collaboration between the Government and local government across the whole range of the public sector to engender savings that might, to some degree, mitigate the disaster that is about to strike our communities.