Local Government Finance Settlement

Lord Shipley Excerpts

Thursday 22nd January 2015 Lords Chamber

[Lord Shipley (LD)]

My Lords, I extend my own congratulations to my noble friend Lady Pinnock and the right reverend Prelate the Bishop of Southwark on their excellent maiden speeches. I declare that I am a vice-president of the Local Government Association.

The very first paragraph in DCLG’s guide to the local government finance settlement in England says:

“Local government finance in England is complicated and can be difficult to understand”.

I think noble Lords would all agree with that, but it is an understatement. It is true, but we now know that the system is unsustainable. The rising pressures on all councils are well documented and it is a tribute to them that they have managed as well as they have. However, it is unlikely that the financial problems facing local government will get much easier, at least in the short term. I hope that they will for those where the cuts have been biggest, but it seems that there will be little extra money for local government overall until at least 2017, whoever wins the election. Labour has now confirmed that it cannot commit to reversing the public sector pay freeze or to scrapping council cuts for the first year after the election.

The reason is that the problem for any Government is stark. The Government are still overspending and are trying to get the annual deficit down. The debt, however, has continued to rise: by over £500 billion in this Parliament. If we protect the NHS, schools, pensions and overseas aid, it follows that everything else has to take a bigger hit. It does not help local government that the general public are broadly content with the performance of their local councils. I suspect that this is because schools and health are protected, many council services are actually minority services and council tax levels have been held down. Given a choice, I think most people would see the NHS as their priority for more spending, not councils.

Despite this, the National Audit Office has said that councils are showing clear signs of financial stress. It also says that DCLG does not gather sufficient evidence to know whether individual councils can or cannot cope with expected cuts in funding. So, in the absence of meaningful data, it is no surprise that opinions can masquerade as fact on all sides, with one side claiming that key services are unsustainable and another claiming that the settlement is fair. For local government, money is at the heart of all of this. There is not enough of it to meet demand and I have come to the conclusion that we would benefit from a clearer link, in the medium term, between the provision of universal local services and the council tax that householders actually pay.

In the short term we need a partnership between central and local government, working jointly with the National Audit Office, to agree a set of baseline facts and approaches. The first of these is how the LGA’s publication Rewiring Public Services can be delivered, because it offers very large annual savings through public service reform. The second is whether we should remove adult social care from the annual settlement process for local government and treat it differently, given the specific pressures on it.

Thirdly, we need to identify clearly the impact of rising demand generally on statutory services. We need to assess why councils charge different levels of council tax in broadly similar places for broadly similar outcomes. We need to explain why rural areas get less per head from central government yet pay much more in council tax, and we need to assess what the savings would be if two-tier areas moved to unitary status.

Councils are going to have to reduce overheads further and raise more of their own money. But I am puzzled by the slow speed of transformation in some councils—although not all—and a similar slowness by some in sharing services across council boundaries. Why is there such a reluctance by some areas to adopt a unitary structure when the cost savings are well established? We have heard from the noble Lord, Lord Liddle, about Cumbria, but this week a report in Oxfordshire said that there could be savings of up to £32 million a year if the six councils merged.

As part of the preparation for what will be an important period after May, it would help if councils did two things: first, talk more in terms of the levels of government support that they receive, rather than just the cuts since 2010, important though those are, since this presupposes that 2010 is the right baseline; and, secondly, understand clearly the level of total public spending in their area, not just their own direct spending, and talk about that publicly.

In conclusion, the big issue is resource equalisation and revenue support allocations based on need. Of course it is right to encourage income growth and good to see the vast majority of councils expecting growth in their share of business rates. But the crucial issue remains: central government allocations should be needs-based.