Local Government: Finance Settlement

Lord McKenzie of Luton Excerpts

Thursday 17th January 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank my noble friend Lord Smith for initiating and leading this debate today and acknowledge his record as a responsible and progressive leader of a local authority. I should make clear the position of Luton, so that it is on the record. Like lots of other authorities, we have had to face significant redundancy programmes, tens of millions of pounds of cuts, we now share a chief executive with two other authorities and we increased council tax last year. I said to the current leader of Luton Council, Councillor Hazel Simmons, that I would hate to have to face the problems that she has to tackle. In my day we may have agonised over a million pounds here or there, but nothing like the scale of things which councils are facing today—councils such as Luton, Wigan, Newcastle, Basildon, Durham, Pendle, and many more. I express my admiration, therefore, to those such as Councillor Simmons and my noble friend Lord Smith who stay at the helm and do their best to cope with the challenges that this Government confront them with and who use their democratic mandate to seek to protect the most vulnerable.

Our main focus today has been on the local government finance settlement, in the words of my noble friend Lord Smith, “the most complex ever”. My noble friend Lady Armstrong highlighted difficulties with the complexity, information still to come through and the tardiness of it and how difficult that made it to consult meaningfully with local communities and the voluntary sector. The settlement follows on from the first two years of the current spending round, and to see this in context, we should reflect on those first two years, in particular the report of the Audit Commission, Tough Times 2012, which is stark. Over the two years ending March 2013, councils will have had a cut in their funding equivalent to 9.3% of their 2010-11 revenue spending. This amounts to £5 billion. Looking at these two years as a whole, the deprived areas of the north of England, the Midlands and inner London have seen the highest cuts. For the 20 most deprived areas, revenue spending has fallen by 14%; in the 20% least deprived by 4.4%. The juxtaposition of this debate with that led by my noble friend Lady Hollis reminds us that unfairness in distribution of resources is not limited to local government.

We see this also in the latest proposals covering 2013-14 and 2014-15. The 20 most deprived authorities will have their spending power cut by an average of 8%; the least deprived by 0.7%. Once again, the most deprived authorities are to be hit the hardest. The Prime Minister’s local authority will gain 1.1%; Manchester will lose 8.2%. Total central government funding for all local authorities in England will fall by 3.9% in 2013-14, but there will be a swingeing 8.6% reduction in the subsequent year. We must add to that the cuts in the two preceding years and acknowledge that, from the Autumn Statement, we know that this pattern is set to continue to 2018. An efficiency support grant will come as limited welcome news to those few who receive it, Pendle included, but the settlement means that local government will continue to bear the brunt of public spending cuts. It is clear from what the noble Lord, Lord Greaves, said, that access to that efficiency support grant is not going to solve the problems of Pendle. The fact that it could have been even worse, with some of the top-slicing for academies and the safety net less than feared, appeals reflected in business rates aggregate, although perhaps not effectively enough for London, with no extra 2% cut in 2014-15, is cold comfort to those faced with having to grapple with the consequences of the settlement.

What will councils do in these circumstances? Of course, for the Secretary of State this should all be easy—just follow the great man’s 50 tips, and all will be well. It is as though councils had not endeavoured to pursue many of the ideas set out and, indeed, initiated some of them. Perhaps we can review the relevance of some of the suggestions. For example, on the proposition to improve council tax collection rates, can the Minister give us a view on the likely impact on collection rates of the new system of council tax support? Sir Merrick Cockell, chair of the LGA and referred to by other noble Lords, offered the view that most councils will have to ask people on lower incomes, including the working poor, to pay more council tax than currently. What is the Government’s assessment of how many councils will not have a scheme that is either the default scheme or equivalent to it? Research by the New Policy Institute suggests that of the first 130 schemes that it has reviewed, only 38 councils have opted to absorb the reduction in support; more than 90 will pass on the cut to poorer residents. It estimates that some 670,000 working age claimants, including 162,000 low income workers, will face an average bill of £156 a year. What is the Government’s estimate?

The Minister was kind enough to write yesterday, following our debate on 19 December. In that letter, she refers to the basis on which local council tax support funding is to be distributed, which is to be OBR forecasts for 2013-14. However, there is a phrase which states:

“An adjustment was made to mitigate very high budget pressure”.

Can the Minister explain what that adjustment is? We really are about to enter the age of poll tax mark 2.

On council reserves, the Government’s own policies are driving councils’ need for prudence by transferring risk to them. Council tax collection risks are made more difficult by reduced support for the poorest, and business rate collection risks are now to be shared with government. We are at the start of a new system which the Government say that, left to them, they would not wish to see reset until 2020. This is made worse by embedding the disproportionately high cuts that have been weighted against many of the poorer and most deprived areas in the funding baseline from 2013-14. Matters are not helped, of course by, the provisional settlement figures coming later than usual—the noble Lord, Lord Tope, made that point—when they were riddled with errors that necessitated corrections within days.

To date, councils have coped with the cuts by maximising efficiencies and redesigning services, shedding hundreds of thousands of jobs in the process. But, as the LGA and others point out, this will be impossible to do for ever. These cuts will reach, and are reaching, front-line services; there will no longer just be salami-slicing efficiencies, whole services will go. My noble friend Lady Smith made that point with some force. The pressures on councils will get worse, as the need for statutory services, particularly adult services, grows, and resources decline. Council tax freezes are all very well, but even Tory councils, as the noble Lord, Lord Shipley, said, are beginning to realise that they erode the tax base in real terms for subsequent years.

Of course, we hear the mantra that salvation for local councils lies in their own hands, because if they grow their business rate base they will retain half the increase—notwithstanding, of course, that the Government seem intent on applying some of the increase in the local share to reduce revenue support grant. If they build new homes, they will garner the new homes bonus. But as we debated when the Local Government Finance Bill was under consideration, not all councils have an equal ability to do this. Tight urban areas may simply not have the land to expand the business base, and the general squeezing of budgets, with the inevitable focus on statutory services, reduces discretionary spend on councils’ economic development services.

In any event, local councils are not totally masters of their own destiny in this regard. The Financial Times today carried an article about the tightening of capital rules for banks by the FSA, which could cause the scrapping of property developments outside London. There is not much that councillors can do about that.

There are, of course, some interesting messages in the recent report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth, where he espouses the benefits of unleashing the entrepreneurial spirit of local areas; we agree. However, government itself has to have a strategy for growth if this is to be meaningful.

There has been much discussion about the consequences of the settlement for local councils and for taxpayers—and also for the challenges facing councillors. The real victims, however, are not the institutions or even the elected members: they are the individuals and families who rely on the services that the councils provide. These are vital services which, in some cases, keep people alive, and which ensure that individuals can have a decent quality of life. They are services which give a meaning to community and a sense of belonging. We lose all this capacity at our peril.