Local Government: Finance Settlement

Lord Shipley Excerpts

Thursday 17th January 2013 Lords Chamber

[Lord Shipley]

My Lords, I declare my interest as vice-president of the Local Government Association. I thank the noble Lord, Lord Smith of Leigh, for initiating this debate, which gives us an opportunity to contribute to the national debate on the settlement.

The funding cuts for local authorities are worse than expected. It is not clear to me why local government has had to absorb such large reductions, nor do I think it is right that the 28% reduction in government support funding over the four years of the current spending period is now, in practice, nearly 33%. The pressure on services, particularly adult services, is very great and the extra 2% cut now planned for 2014-15 is a step too far—not least because cuts in government support impact particularly hard on those councils more dependent on government grant. In terms of the outcomes from the consultation I hope that the Minister, together with her colleagues, will bear this in mind.

In this debate I want to concentrate on council tax: the levels of council tax charged by local authorities in England and the consequences of a year-on-year freeze. In too much of the public discussion about the cuts and the fairness of them, the role played by council tax in alleviating some of those cuts has been strangely absent.

The public debate over the settlement has been dominated by those trying to persuade the Government to adopt their definition of fairness. Never in the history of local government settlements have the words “fair” and “fairness” been used as much as they have in recent weeks. The Government claim that the settlement is fair to everyone. In the settlement announcement on 19 December, the Secretary of State said:

“This is a fair settlement, fair to north and south, fair to rural and urban areas and fair to shires and metropolitan England”.—[Official Report, 19/12/12; col. 1604.]

Northern councils argue, correctly, that they face much bigger cuts than councils in the south and say that this is unfair. Some councils in London face much bigger cuts than elsewhere in the south too. Overall, the reductions in the more deprived areas are twice the average reductions across the country. However, councils in the south counter that the level of support per head in the north will still be much higher than in the south even after the latest round of reductions in government support.

Rural councils complained in late December that the spending settlement hits rural areas harder than urban ones. In the summer, south-east councils published a report claiming that a fairer deal was needed for the south-east, because south-east residents faced unfairly high levels of council tax as a direct result of low central funding for south-east authorities. They pointed out that per capita grant allocations in the south-east outside London were half the level of London and of the metropolitan areas.

So, perceptions of fairness vary. Equalising resources through government funding is surely fair, as a principle, but is it not also fair that levels of council tax charged should be more equal between different councils? Some councils charge more than others despite being in the same part of the country. Similar properties, with householders on similar income levels and with similar household costs, can pay widely different amounts of council tax.

As an example, the average council tax this current year in my home city of Newcastle upon Tyne is £1,039, which is the third-lowest in the north-east and which, incidentally, is £540 lower than Wokingham. The lowest average council tax in the north-east is £904 in Sunderland and the highest is Redcar at £1,166—a difference of £262. At band D, the highest in the north-east is £1,681 in Hartlepool and the lowest is Sunderland at £1,343—a difference of £338. However, household incomes, housing costs and the general cost of living are not that different across the north-east. So why is there a demand that only the Government should solve the funding gap for a council which charges lower council tax than its neighbours when it could raise extra income by charging a council tax closer to their level?

I will go a little closer to home. On average, a Newcastle household pays £1,039, which is £20 less than a Gateshead household, which pays £1,059. At band D the difference is greater: Newcastle charges £1,512 but Gateshead charges £1,600—£88 more. If we compare Newcastle to Northumberland, with which it shares a boundary, we find that although Northumberland charges broadly the same as Newcastle at band D, at £1,504, the average household in Northumberland pays £1,155, which is £116 more than the average payment in Newcastle. I am puzzled by why these differences are not being publicly discussed. Simple arithmetic tells us that a small rise in council tax to the level of a neighbouring council could generate significant sums to alleviate, for example, proposed library closures and cuts in cultural support over the next three years.

This takes me to the issue of whether council tax should be frozen. When the new Government proposed a zero council tax rise in their first year of office and gave councils an equivalent grant to cover the cost, I was in agreement with that freeze, having in previous years supported raising council tax by the rate of inflation and dealing with other rising costs through driving major efficiency measures. However, since the first year of the council tax freeze, despite the offer of time-limited freeze grants, councils have had options. In the current financial year, four north-east councils, all in the Tees Valley, raised council tax by 3.5%. They were prudent.

This year’s offer of a 1% freeze grant when costs are rising higher than 1%, and when councils could raise council tax by up to 2% without calling a referendum, needs to be thought about very carefully. Councils which continue to freeze council tax, possibly for two further years, making five in total, will end up in even greater dependency on the Government for their income. I think that this is a very dangerous strategy. Councils need greater control of their own finances by generating a stronger local tax base, which will in future, of course, include building business rate growth in which they will share financially.

The Secretary of State has said recently that councils have a “moral duty” not to increase council tax. I would not have put it like that. Surely the moral duty of councils is to deliver services needed by their residents, particularly those who are less well off. Councils could, of course, help themselves more by driving greater efficiencies in the way that they work. As an example, in his settlement announcement the Secretary of State said that if councils merged their back offices like the tri-borough initiative in London, they could save £2 billion. If those figure proved to be true, it would mean that there is potential for saving more than £20 million in Tyne and Wear—money that could be redirected into service provision.

I understand from the press that more than 20 councils in England are reported to have considered their financial position in the context of whether council tax should be frozen, and they have rejected this option and are planning to raise council tax by up to 2%. Of these, 10 are Conservative run. I think that they are right to choose to do this if they see it as being in the long-term interests of their residents. This is localism in action. It reduces dependency on central government and can avoid cuts to services. Crucially, it provides greater financial stability.

However, what if councils think they should raise council tax by more than 2%? The Secretary of State said in his settlement announcement that holding a referendum would be,

“democracy in action: if you want to hike taxes, put it to the people.”—[Official Report, 19 December 2012; col. 1603.]

Yet, apparently, none plans to do so. So, why do councils shy away from holding referendums? I am regularly told that it is not worth doing because there would be a no vote if a council went to a referendum. I doubt that that would always be true. Are those councils really saying that they are so detached from their voters that even a reasoned case would be rejected?

I think that councils need to show much greater leadership and self-confidence rather than putting all their efforts into trying to persuade everyone that this is only a matter for the Government to address. If they genuinely believe they cannot drive further efficiencies, why do they not put their case to their voters? If it is really true that libraries have to close, swimming pools are at risk and that cultural budgets have to be abolished, surely the public should be given the right to vote on the option of paying a little bit more to prevent this happening.

I agree entirely with the noble Lord, Lord Smith of Leigh, who asked for there now to be a discussion about the way forward, particularly in view of 2014-15. I would welcome the consultation and further discussion that he has called for.