Local Government Finance Settlement

Lord Beecham Excerpts

Thursday 9th January 2014 Lords Chamber

[Lord Beecham (Lab)]

My Lords, I refer to my local government interests in the register.

For the past 47 years I have been a councillor for a ward that is among the 10 most deprived wards in the country. Its spiritual needs are in part met by the daughter of the right reverend Prelate, who is the vicar of St James’s church in that ward. Life expectancy is 10 years less in that ward than in the ward in which I live. The unemployment percentage is in double figures. Most of our primary school children in the ward are entitled to free school meals and the schools operate a breakfast club. We have one food bank in the ward and another within a quarter of a mile of it. Hundreds of residents have been hit by the bedroom tax and the changes to council tax support, which can take just under £4 a week from people on JSA of only £71 a week but also affect many people on low wages. Rent and council tax arrears are mounting and evictions may follow, although the council is doing all it can to help avoid them. Non-statutory youth provision is being cut, play centres are closing and another voluntary centre is under threat. The future of our successful Sure Start centre may be in doubt after 2015. Maintenance of open spaces is under severe pressure. The city’s citizens advice bureaux, its law centre and other agencies are overwhelmed with people seeking help over financial and legal issues and are themselves facing grant and income reductions.

Before the general election, the Guardian published a letter from me—it has published a few since—in reply to an article which dismissed the achievements of the Labour Government. Whatever failings that Government, like all Governments, may have had, I could identify many ways in which my constituents had benefited, from massive investment in decent homes, to school and hospital building, the minimum wage, Sure Start and concessionary travel. I ended the letter by saying that I trembled for their future if the Conservatives won the election. Those fears have been amply justified—and more—by the past three and a half years of rule by the Conservatives and their Liberal Democrat accomplices.

However, what is particularly galling is the brazen effrontery of the Secretary of State, who is in complete denial about the havoc that is being wrought throughout much of local government. This was the Minister who was first across the Chancellor’s door in 2010 to offer up local government as a sacrifice on the altar of government cuts—Salome to George Osborne’s Herod, although fortunately we were spared the preliminary dance of the seven veils.

Newcastle, like many other urban councils with high levels of deprivation, faces cuts of 40%—£108 million a year on what was a budget of £260 million. As a result of cuts in the grant and a failure to reflect rising costs and demands of the kind mentioned by my noble friend Lord Smith—whose masterly opening of this debate I applaud—especially in the fields of safeguarding children, adult social care and concessionary travel, core funding is to be cut by 25% over the next two years. The nearby authority of Durham, not the most affluent part of the country, faces cuts of £110 million a year by 2016-17, on top of the £114 million a year it has already suffered.

The story is repeated up and down the country, especially, as my noble friend pointed out, in authorities with a Labour council. Even the Conservative leadership of the LGA has been compelled to warn of the impending collapse of local government by 2020 beyond the delivery—albeit even then in attenuated form—of statutory services.

Ministers are content to rely on selected and misleading statistics to pretend, Candide-like, that all is for the best, albeit in what is perhaps not the best of all possible worlds. However, as Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, pointed out, the much delayed announcement, unusually made by virtue of a Written Statement of the settlement, was, as my noble friend pointed out, stronger on spin and misleading presentation than the technically sound explanation that councils and the public would expect.

Here it becomes necessary to delve into the arcane world of local government finance. The territory bears an uncanny resemblance to the Schleswig-Holstein question of the 19th century which, it will be recalled, was understood by three people: Bismarck, one who was mad, and another who was dead.

Thus the much vaunted new homes bonus costs a significant number of authorities , including Newcastle, more than they receive because, like the council tax freeze grant, it is effectively top-sliced out of money that should have come to councils anyway. It is a classic example of the three-card trick. In similar vein, the Government make much of spending power, carefully ignoring that this does not include a range of specific grants, many of which have been mentioned, such as the education services grant and the housing benefit administration grant, but crucially does include pooled budgets of the NHS and the better care fund, much of which will be spent not by councils but by the continuing NHS bodies, be they clinical commissioning groups or others.

The trick of the Government is to talk about spending power, not spending need—hence the ludicrous comparison, to which Ministers are addicted, between Newcastle and councils in the distressed areas of Berkshire, Wokingham, and Windsor and Maidenhead. Thus Newcastle’s children’s social costs are three times that of the latter—£226 per head higher in relation to population. Adult care costs are £206 per head higher. Homelessness and welfare is £82 per head higher and concessionary travel £59 per head higher. There is no comparison between Windsor and Maidenhead and Newcastle in terms of need and deprivation.

Unemployment is four times higher in Newcastle than in Windsor and Maidenhead. No wonder Rob Whiteman said:

“When Government ministers compare such different councils as affluent Windsor and metropolitan Newcastle in an attempt to justify the ‘fairness’ of the settlement it only serves to highlight how out of touch this process has become”.

Thus the alleged greater spending power of Newcastle, touted by Ministers, is illusory—but in time, under this settlement, even Windsor’s spending power will exceed Newcastle’s, and that of local authorities like us. Of course, there are many more victims of this cynical and callous approach. It is not a matter simply of the north-south divide. The pernicious impact of this persistent drift from needs-based distribution will be felt—is being felt—in inner London boroughs and coastal towns, as well as the towns and cities of the Midlands, the north and parts of the south-west.

Without consultation, the Government have cut, and will continue to cut, the grant for resource equalisation, designed precisely to compensate those councils with a lower council tax base, including those with large numbers of students who are exempt from tax. This will be cut by 36% over the next three years, with a huge impact on the distribution of grant, by definition hitting hardest those areas with higher numbers of lower-banded properties. Newcastle, for example, has 57% in band A—the lowest band. Windsor has just 3%. We should remember that many of those in that band who would have received council tax support will now be paying 20% or more of the local council tax, which previously would have been covered by council tax support.

Interestingly, many of the worst-affected councils under this and future settlements are those with high numbers of BME residents, such as Newham with 71% and Birmingham with 42% of the population. There appears to be no evidence that an equalities impact assessment has been made in this respect. I invite the Minister to comment on what might well be a matter for judicial review, because equality obligations appear to have been ignored. The whole way in which the Government have manipulated the system while giving airy assurances about its supposed fairness makes the American fraudster Bernie Madoff look like the Governor of the Bank of England.

During my 17 and a half years as leader of the city council, I thought I had times of great difficulty, as the city faced penalties, rate capping and the depression of the 1980s. Some of that was under the aegis of the noble Lord, Lord King, with whom I must say a civilised relationship is always possible. They were nothing like as bad as the problems facing today’s council, or the people of our city and others. If I am re-elected in May, I hope to notch up my half-century as a councillor in 2017. I can only hope and pray that by then we will have a Government who treat local government as an essential partner in the economic and social life of the country and ensure that it is supported by adequate and fairly distributed resources. If not, I will not be the only one to tremble at the consequences for our communities, our youngsters, our elderly, our economy and our environment.

--- Later in debate ---

[Baroness Stowell of Beeston]

I am not suggesting that people overemphasise, I am suggesting that the different approaches between this Government and the noble Baroness’s Government led to authorities focusing on where they faced difficulties rather than focusing on how they could benefit from opportunities.

One of the best illustrations of this Government’s approach is the new homes bonus, an incentive that will be worth almost £1 billion next year. This year, Bradford can expect some £2 million in new homes bonus for year 4 of the scheme, Wiltshire some £3 million and Walsall £1.2 million. The Government have listened to local authorities about not topslicing the new homes bonus, which was acknowledged by the noble Lord, Lord McKenzie. I am listening to noble Lords who call for even greater localism and I am interested in what they say but I also hear some contradictions in the various analyses that have been made by noble Lords in the debate today.

One of the other major points raised by noble Lords is that some parts of the country are losing out compared to others. However, the settlement represents a fair deal for every part of the country: north and south, district and county, city and shire. On average, councils will have spending power worth £2,089 per household. The average spending power reduction is just 2.9% in 2014-15. There is protection for more deprived areas of the country, those areas which are most dependent on grant. They continue to receive significantly more government grant. Notwithstanding the comments made by the noble Lord, Lord Beecham, it is worth making the point that Newcastle, for instance, receives in the region of £900 more per household than authorities such as Windsor and Maidenhead.

We have also recognised—

[Lord Beecham]

Does the Minister not recall the indices of deprivation to which I referred? The required spending is much higher per head than in Windsor and Maidenhead. On that basis, how can she possibly compare the two?

[Baroness Stowell of Beeston]

This system acknowledges that there is greater need in an area such as Newcastle. That is why it is receiving considerably more per household than areas that are not in as great a need. We acknowledge that and that is what we are doing. However, we also believe, taking on board the point made by my noble friend Lady Hanham, that Newcastle, along with every other area of this country, also has great opportunities to raise more funding in its own area through the various different kinds of scheme that are there and that will increase growth in the area if the opportunities are taken. We have also recognised that services can sometimes be more difficult and expensive to deliver in rural areas and have set aside £9.5 million to help them as they modernise their services.

The noble Lord, Lord Beecham, raised questions about the inclusion of social care funding. Social care funding, or the better care fund, which is worth £3.8 billion, is jointly agreed by councils and the NHS locally. Provisional settlement figures show that authorities facing the highest demand for services receive substantially more funding.

As councils are now in the process of setting their budgets, council tax payers will be looking to them to keep bills down. When we look at the local government finance settlement, local council tax payers are very much in the front of our mind. The Opposition talk a lot about the cost of living, but it is worth pointing out that under the previous Government, as my noble friend Lord True said, council tax more than doubled. This Government have done everything possible to protect hard-working families from further rises. Over the past three years, we have offered enough funding for councils to freeze council tax without losing income. We will be doing the same again for the next two years, with a further £550 million available to councils. We also intend to roll that funding into the baseline, giving certainty that councils will not lose out tomorrow by helping council tax payers today. Where bills have been frozen, the average bill payer could have saved more than £700. I very much hope that as many councils as possible will take up this offer, passing on these savings to their residents and doing their bit to help people with the cost of living.

I do not think that any noble Lord raised the issue of council tax referendums but I am sure your Lordships will wish to know that we are still consulting on the principles of that. The threshold will be announced shortly. Noble Lords should be aware that we are open to representations about a lower threshold than that set up to now. Transparency and accountability to local taxpayers are absolutely critical. Those authorities which have been setting a 1.9% increase to avoid the 2% threshold for a referendum are simply not having an honest conversation with their residents. The money is there to freeze bills so why not take it?

[Lord Beecham]

I am grateful to the noble Baroness. Is she saying that you can have any increase you like under 10% as long as the Government approve of it? Why does she not allow the electorate to make its judgement as it does upon Governments, at the ballot box at elections?

[Baroness Stowell of Beeston]

The noble Lord knows very well that we are ensuring that councils can freeze council tax. We think that it is important that that can be delivered as a way to support families who struggle with the cost of living. The noble Lord, as concerned as he is about the cost of living, should support councils in freezing their council tax.

I do not agree with the noble Lord, Lord Liddle, that my right honourable friend the Secretary of State has not paid tribute to what many councils have done to try to transform services. We acknowledge that many councils have taken steps to make savings through common-sense measures, but much more could still be done. I also do not agree with the noble Lord, Lord Smith of Leigh, that nothing more can be done because only low-hanging fruit was available to them. We are not talking small change here. It is estimated that some £2 billion a year is lost through local fraud. Local authorities spend £60 billion a year on procurement. There remains plenty of room for councils to save significant sums through more joint working, sharing back-office functions and using smarter procurement practice. Council tax payers rightly expect to see councils tackle these issues before they start putting up bills or cutting back on services. As has already been mentioned, the Government published Fifty Ways To Save. I will not accept any cynicism about this because no council is yet fully realising the potential set out in that document. As one example, there are only around 20 shared chief executive posts in the country. There are plenty of other examples where local authorities have made significant strides forward in this area and demonstrated what is possible.

Councils also have more than £19 billion in reserves. People would be surprised to hear that that is increasing while at the same time local authorities plead poverty. There is also something like £2 billion-worth of uncollected council tax. Councils have varying degrees of success in their collection rates, but all need to aspire to the best. That is even before we begin to consider the more fundamental transformation in services through models like the troubled families programme or the whole place community budgets, where the emphasis is on early intervention and prevention. Over time, these programmes promise to be more effective and efficient. I could offer more examples but do not have the time. I highlight this kind of approach in response to the noble Baroness, Lady Pitkeathley, and others who raised concerns about some specific services. We have set aside £200 million from capital receipts to support service transformation. Next year, there will be a further £330 million to continue this transformation, including a £200 million expansion of the troubled families programme.

Several noble Lords raised questions about the timing of the announcement. I am sure that noble Lords will understand that the settlement must follow the Autumn Statement, which this year was on 5 December. The noble Baroness, Lady Donaghy, asked about the consultation period. I make the point to her and other noble Lords that the consultation period we are in at the moment is on top of widespread consultation during the course of the year that led to the provisional settlement. I have already mentioned in respect of the new home bonus one change that we made in light of listening to that consultation. My honourable friend the local government Minister has already had one conference call open to all local authorities. He will hold another and continues to have an open-door policy available to all those wishing to engage and discuss matters with him.

The right reverend Prelate the Bishop of Ripon and Leeds and the noble Lord, Lord McKenzie, asked about local welfare provision. Councils will continue to provide support to those in the community who face financial difficulty or find themselves in unavoidable circumstances. The LGA has raised those issues with DWP Ministers, and I understand that it is in discussion with the DWP at this moment.

As I said, I will follow up some other points in a letter that I will write following the debate. In concluding, councils have taken important steps towards modernising and transforming their services, and I pay tribute to them for their efforts, but it is possible to do more while also keeping council tax down. We have delivered a settlement that is fair to all parts of the country, and we believe that the flexibility is there to help councils to meet this challenge and, most importantly, to serve their local taxpayers even more efficiently and effectively than they have been able to in the past.